Foxtons warns of 2017 volume concerns after 2016 profits plunge

Foxtons revealed that profits for 2016 had almost halved as the London estate agent endured subdued sales volumes in the capital through most of the year, which it warned could even worsen in 2017.

With sales in the fourth quarter down 25%, group revenue for the year fell 11% to £133m, well short of the consensus estimate of £137m due mainly to a respective 23% and 1% reduction in house sales and lettings divisional revenue.

Adjusted profit for the period before finance costs, finance income, tax, exceptional items, depreciation, amortisation, profit on disposal of property, plant and equipment and share-based payments (EBITDA) tumbled 46% to around £25m, short of consensus expectation of £28m.

The company, which opened seven new branches in 2016 and has two further two branches in outer London due to open in the first quarter of 2017, said it focused on controlling costs while market conditions remain challenging, which had protected EBITDA margin during the second half of the year.

Chief executive Nic Budden said management expected trading conditions to remain challenging in 2017.

"Should current levels of sales activity continue in the short term, it is likely that 2017 volumes will be below those in 2016," he said.

"Our balanced business model provides resilience against sales market cycles and we have a strong balance sheet with no debt. Our high-touch approach to customer service continues to be a key differentiator and as the most recognised residential brand in London, we are uniquely positioned to manage through the market uncertainties and take advantage of any change in conditions."

Lettings remained a relative bright spot, with revenues flat in the final quarter as resilience was shown thanks to high levels of renewals despite lower levels of new tenant activity and some downward pressure on rents arising from increased stock availability.

Foxtons, which was demoted from the FTSE 250 after two years in December 2015, pointed out that its lettings business remains a consistent and recurring revenue stream which comprises over half of group revenues.

Analyst Anthony Codling at Jefferies, said 2017 "will be tough" for the company.

"Foxtons can do many things, but it cannot change market conditions. The sales market in London is tough, but one can rest assured Foxtons is not taking this lying down," he said.

Credit Suisse quickly reduced their 2017 earnings per share forecasts by 23% and for 2018 by 26%, lowering its target price to 85p from 100p.

"The group's continued weak performance remains a reflection of both the deteriorated London sales market and stationary growth in lettings volumes," analysts wrote.

Shares in Foxtons, which pretty much halved last year, fell a further 5% to 94.25p by mid-morning on Wednesday.