Foxtons shares anticipate housing market pain
Ken Odeluga August 27, 2014 2:13 PM
<p>Shares of Foxtons Group Plc. lost almost 7% early this morning after the high-profile UK estate agent warned it expected a slowdown in transactions in […]</p>
Shares of Foxtons Group Plc. lost almost 7% early this morning after the high-profile UK estate agent warned it expected a slowdown in transactions in the second half of the year due to government measures aimed at controlling mortgage lenders.
Foxtons is thought to be particularly sensitive to the broad residential property sector and the market reacted immediately to its caution about the second half, despite the group reporting a pre-tax profit rise of 57.1% to £23.1m for the first-half.
Foxtons flagged in the first quarter of 2014 dangers represented by a booming housing market to its rental income streams, a substantial share of its business, raising concerns that both housing sales and rentals could face risks.
A new special pay-out to soften the news
The group did however announce a further special dividend of 2.77p per share after having distributed a ‘bonus’ pay-out of 3.7p a share with annual results in the spring, its first since returning to public markets in September 2013.
Foxtons said it would pay an interim dividend of 1.77p per share, bringing the total pay-out for the first half to £12.8m.
Despite core earnings of £24.9m, the London-focused group said a widely anticipated increase in interest rates was already having an impact on short-term demand.
The Bank of England earlier in the year announced measures to stem a rise in what it regards as risky home loans. A survey released earlier this month suggested asking prices for houses in Britain have fallen at the sharpest pace on record, with a pronounced drop in London.
Despite the hit to the stock this morning, I do expect the extent of the share price loss to moderate later in the day partly due to the respectable cash return, including a special dividend announced today.
Foxtons’ free cash flow measured either on a trailing basis or a forward prospective basis appears to have been advancing steadily for years. Therefore, if management is minded to offset concerns over housing market contraction by means of returning cash, there is quite a bit of scope.
The shares need to avoid returning to the broad falling channel entered in February from a high that month of 397.45p.
If the stock pierces 263p, the downtrend will have resumed and only a marginal support around 253p could protect from a drop to fresh lows beyond 249p, the stock’s weakest level so far, since it was re-listed last year.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.