'Brexit smog' blamed for long-term slump in Foxtons' share price

The investment bank Jefferies says Foxtons’ long-running share price slump is a reflection of Brexit uncertainty “until we find out what Brexit actually means.”

In a note to the bank’s investor clients, equity analyst Anthony Codling says in the longer term investors may regard Foxtons’ current struggling share price as “attractive before the Brexit smog lifts.”

Foxtons reached its highest-ever share value four and a half years ago when it hit 398.80p - that’s far above its launch price of 230p some six months earlier in autumn 2013. 

However, it has drifted downwards for well over a year. Twelve months ago the price was just under 100p; in recent weeks it has been between 50p and 60p.

Some analysts have put Foxtons’ dwindling share price down to a wider-ranging lack of enthusiasm amongst investors for traditional agencies, likening the London agency’s performance to that of Countrywide - which Jefferies has acted as an adviser for in the past.

But now Jefferies says London’s specific sales market problems are down to  other issues such as Brexit and a longer-term increase in renting rather than owning. 

“We expect domestic demand to remain subdued until the full implications of the UK EU Referendum are known. We also believe that as the private rented sector in London continues to grow the equilibrium level of housing transactions will fall” explains Codling in his note to clients.

He points out that since 2014 more households in London have been in the private rental sector than buying their home with a mortgage.

In addition, Codling says there is a fragmented lettings market within the capital - of particular importance to Foxtons, as the agency has relied more heavily on lettings income of late, as transaction volumes have diminished.

“Zoopla currently lists 3,723 letting agents operating within London. We believe that in London there is one letting agent for every 880 homes (compared to one for every 1,900 homes outside of London) and we estimate that Foxtons has a market share of less than two per cent in the London lettings market” Codling continues.

He says next year’s lettings fee ban is a challenge for all lettings agents but may be an opportunity for larger agents. 

“Foxtons has multiple revenue streams including sales, lettings, financial services and new homes. Many lettings agents in London focus solely on lettings and are much more at risk from the fee ban than Foxtons, in our view. We believe that the fee ban offers Foxtons a significant once in a cycle consolidation opportunity” says the analyst.