Foxtons' transactions to drop 10% in 2016 then flat in 2017 - forecast

Jefferies, the City investment service known for its analysis of major residential sector firms, forecasts Foxtons’ transactions to fall 10 per cent this year and remain flat in 2017.

In a note to investors the service says it likes Foxtons’ “straightforward strategy” and that with revenues of around £130m and larger margins than most of its competitors “it’s doing many things right” despite long-term share price falls.

The firm’s share price is down 30 per cent since the EU referendum in June. 

Jefferies says the performance of Foxtons, because of its capital-wide branch network, is inextricably linked to the performance of London’s market - and on this front the investment firm warns of “both macro and micro headwinds.”

However, it does caution that whatever the market conditions “we believe it will be challenging for profit margins to be maintained as branch expansion continues into the outer zones of London. We believe that expansion should lead to profit growth, but think that those profits will be delivered at a lower margin.”

Last month Foxtons announced that its total revenues in the previous quarter dropped 14 per cent compared to the same period of last year, and that its sales revenue shrank by a startling one third to £12.2m.

However, the agency says two more branches will open in the first quarter of 2017 despite the performance.

Now Jefferies says that it is recommending a ‘hold’ status for the company. The absence of a second post-referendum profit warning from the agency is seen as a good sign, but the absence of any clear signs of an improving London housing market should also act as a note of caution, Jefferies says.

The investment note concludes: “Foxtons does not have the broad geographic exposure shared by other estate agents we follow and its fortunes are explicitly linked to the strength or weakness of the London housing market. Significant reductions in house prices and/or rents and housing transactions will negatively impact our estimates, and should its organic growth plans be trimmed, our estimates are likely to be trimmed as well.”