Foxtons' H1 profit falls 42% due to Brexit uncertainty

Half year profits at Foxtons slumped 42.2% due to Brexit uncertainty and the real estate agent said the market is unlikely to see signs of recovery before the end of the year.

For six months ended 30 June, Foxtons reported a 42.2% decline in profit before tax to £10.5m compared to the year before. Revenue fell 3.1% to £68.8m.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) also fell 35.9% to £13.1m. Adjusted EBITDA was affected by a sharp contraction in revenues in the second quarter and by an increase in underlying costs as the company expanded with seven branches.

Chief executive Nic Budden said: "Uncertainty surrounding the EU referendum led to slow residential property markets in London during the first half of the year … The result of the referendum to leave Europe is likely to lead to a prolonged period of further uncertainty and we do not expect London residential property sales markets to show signs of recovery before the end of the year.”

In the first quarter the company achieved a record revenue due to a surge in property sales in March ahead of the introduction of higher stamp duty charges for buy-to-let properties and second homes. The second quarter, in comparison, experienced a sharp contraction and the company said it believed the overall level of property sales in London during the first half of the year fell substantially compared to last year.

First half year revenue comprised sales commission of £31.3m, lettings revenue of £32.6m and mortgage broking revenue of £4.7m. Foxtons said property sales volumes “held up well against weak market conditions” by growth in new branches.

Lettings revenue fell marginally due to uncertainty caused by the EU referendum. Lettings volumes fell 11.5%, but the average fee increased by 9.9%.

Budden added: "Despite the current market uncertainty, Foxtons is well positioned as London's most recognised brand in the property sector with a strong balance sheet and significant cash generation. As we enter into the second half of the year, we have several initiatives underway to promote the growth of our lettings business and our less mature branches remain focussed on delivering market share gains.

Budden said the company may slow down the pace of branch expansion in light of market conditions. In the long-term, Foxtons expects London to remain an attractive market for sales and lettings despite current economic uncertainty and aims to have 100 branches in London.

Numis analyst Chris Millington said: “Foxtons first half results are in line with the update given at the end of June. We previously suggested the company should make circa £30m EBITDA for the full-year, but taking into account cost trends and recognising the difficult market backdrop post-Brexit, we now forecast £27.4m. We have set our target price based on a 6% yield for 2016, which should benefit from cost cutting and lower cap-ex and we believe the shares can move meaningfully higher once uncertainty lifts and volumes recover.

“Whilst it is difficult to predict the future trends in the London housing market, Foxtons remains highly cash generative and we believe it will benefit when London sales volumes do recover from the current low levels”.

Basic earnings per share fell by 41.2% to 3p per share. Due to “strong” cash generation, the company decided to maintain the interim dividend at 1.67p per share and because of the current uncertain economic environment will not pay a special dividend.

Shares in Foxtons were down 5.83% to 116.78p at 0926 BST. In the past year shares in Foxtons shed about 50% of its value and since the EU referendum on the 23 June about 25%.