It may be too early for some readers, but I have a number of companies within my Smaller Quoted Companies sector that I really fancy for a good run in 2025.
One of the list is London’s leading estate agency the Foxtons Group (LON:FOXT).
And following another read-through of the group’s recently announced Q3 Trading Update, I am convinced that its shares at the current 59p are totally undervalued.
The Business
Foxtons, which was established in 1981, is London’s leading estate agency and largest lettings agency brand and has a portfolio of over 28,000 tenancies.
It operates from a network of some 64 interconnected, single-brand branches and offers a range of residential property services across three business segments: Lettings, Sales and Financial Services.
The company has a declared strategy to accelerate its growth and deliver against its medium-term target of £25m to £30m adjusted operating profit, by focusing on non-cyclical and recurring revenues from Lettings and Financial Services refinance activities, supplemented by market share growth in Sales.
The Q3 Trading Update
On Thursday 24th October the group issued a Third Quarter Trading Update, showing consecutive growth in each quarter this year.
Revenues were up 8% to £47.4m (£43.9m), taking its year-to-date up 10% to £125.9m (£114.8m).
The actual sales growth in Q3 was an impressive 36% better at £13.5m (£9.9m).
That brought the performance of the group into line with Management expectations, while keeping it well on course to achieve its medium-term goals of £25m to £30m in adjusted operating profit.
Management Comment
CEO Guy Gittins stated that:
"We have delivered our third consecutive quarter of growth, with Q3 revenues up 8% to £47.4m, and year-to-date revenue up 10% to £125.9m, as the momentum we have built across the business has been maintained, and we continue to cement our position as London's largest lettings and sales agency brand.
Continued market share growth, enabled by a focus on improving training, negotiator tenure, culture and our data and technology capabilities, and supported by early signs of market recovery, drove Q3 Sales revenue up 36%.
This growth was supported by a resilient performance in Lettings, which continues to provide a valuable stream of recurring and non-cyclical revenues.
We enter the final quarter with optimism: our sales agreed pipeline is 23% higher than this time last year, sales volumes in our markets continue to recover, and we are well placed to continue to unlock the value within our business.
Our balance sheet and cash flow remain strong which will continue to support our growth and value creation initiatives, including both organic investments and synergistic lettings acquisitions.
We are on-track to deliver increased profitability in 2024, in line with consensus, and we continue to make progress towards our medium-term target of £25m to £30m adjusted operating profit."
Latest Acquisitions
Four days later than the Q3, the group announced the £12.6m acquisition of two estate agencies, more sited out of the centre of London – Haslams, with three branches around Reading, and Imagine, with three branches around Watford.
The acquisition policy is to acquire high quality, earnings accretive, lettings focused businesses, with synergistic growth opportunities which increase the group's exposure to recurring lettings revenues (lettings revenue accounts for some 60% of total revenue for each acquisition).
Gittins stated that:
"Reading and Watford are new markets for Foxtons and reflects our confidence that the Foxtons Operating Platform, and in particular our technology, data and reach can unlock new growth opportunities in these new markets."
Analyst Views
At Singer Capital Markets, analyst Greg Poulton rates the group’s shares as a Buy, looking for 94p as his Price Objective.
His 2024-year estimates are for revenues of £162.0m (£147.1m), with adjusted pre-tax profits of £17.0m (£13.8m), taking earnings up to 4.2p (2.8p) and paying out a dividend of 1.10p (0.90p) per share.
For next year he sees £177.7m revenue, £19.9m profit, 4.7p earnings and a 1.30p dividend per share.
Andy Murphy, at Edison Investment Research, has a 134p a share valuation on Foxtons’ equity.
He thinks that the falling interest rates and property market stability are helping buoyant property sales.
His 2024 estimate is for £160.2m sales, £19.5m profits, 3.7p earnings and 1.3p dividend.
For 2025 his figures for £178.5m sales, £23.6m profits, 4.5p earnings and a dividend of 1.6p per share.
In My View
I do believe that the £179m capitalised group is significantly undervalued – especially if it makes £23.6m profit next year.
The shares, now at just 59p, could so easily appreciate by 25% and still look cheap at 73.75p each – which is very possible in 2025.
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