Foxtons earnings subside as London property market slows down
The sharp downturn in property sales in the second half saw earnings subside at London estate agent Foxtons, which warned that it expects property sales activity to remain subdued for some months yet.
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Chief executive Nic Budden said: "Whilst we expect property sales activity to remain subdued at levels comparable to those seen in late 2012 and early 2013 until greater political and economic certainty returns, the long term fundamentals of the London market remain sound and attractive."
He stressed that the group's organic expansion strategy that will see seven more branches opened this year, together with its strong lettings business, will enable it to grow revenue and profit even in a flat property sales market.
Nevertheless, broker Numis reduced its 2015 estimates to reflect the continued depressed nature of the sales market and assumptions of a slower branch roll-out.
Last year, Foxtons opened seven new branches to take its total to 51, helping revenue rise 3.4% to £143.9m.
In aggregate the second-half slowdown led to Foxtons sales volumes declining 3.7%, but due to a 7.5% increase in the average revenue per unit, sales revenue actually rose 3.6%.
But adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) were dragged down 6.9% to £46.2m, in line with forecasts adjusted after a recent trading statement.
Profits before tax still climbed 8.2% to £42.1m but earnings per share sank 2.5% to 11.9p, with a total dividend proposed of 5.16p per share comprising 3.17p final and 1.99p special payments.
"2014 was a year of contrasting halves," Budden reflected, but praised the robustness of the company's business model, expansion strategy and strong position in lettings, which enabled revenue growth and high EBITDA margins to be maintained.
Adjusted EBITDA margins of 32.1% were down from 2013's 35.7%, which he said was a positive performance when set against the extremely favourable property sales market conditions in 2013 as well as the absorption of the first full year of costs as a public company.
Budden later told industry analysts the company had been forced to lay off 60 new estate agents as the boom turned on its head: “We saw very significant activity in the market during the first half of 2014. We had already used up excess capacity in the business in 2013. We began to recruit for what we thought was a longer term uplift and as the downturn came we were a little bit overstaffed and we reduced that overstaffing.”
Due to the continued uncertainty surrounding the London sales market, Numis said it was reducing 2015 EBITDA to £48.0m from £50.4m, with EPS cut to 12.2p from 12.9p.