Foxtons shares suffer major correction

Its 230p IPO price a distant memory, London estate agent Foxtons plumbed new lows Monday after warning that profits will be much worse than expected this year. Prospective homeowners, who put off one of the biggest investment decisions they'll ever make in the runup to the European Union vote, are now even more confused. This does not bode well.

Back in April, Foxtons reported a record first quarter following a stampede to beat the 3% stamp duty surcharge on buy-to-let investments and second homes. But even then chief executive Nic Budden predicted that the referendum would crimp volumes in the first half.

Well, it did, and now, one month before presenting first-half results, Budden warns that "the decision to leave Europe is expected to prolong that uncertainty."

"Whilst it is too early to accurately predict how the London property sales market will respond, the upturn we were expecting during the second half of this year is now unlikely to materialise," he added. "The result of the referendum has increased uncertainty and is likely to mean that these trends continue for at least the remainder of the year."

Factoring in a drop off in volumes plus the cost of its agency roll-out strategy, Numis Securities analyst Chris Millington thinks Foxtons will make a £12-14 million cash profit in the six months to 30 June, down from £20.5 million a year ago. "Given the group had a strong first-quarter, it implies the second quarter was close to break even," he says.

"We expect a material [year on year] reduction in both half- and full-year profits, which will also have a corresponding impact on dividends."

In 2015, Foxtons made a cash profit of £46 million, pre-tax profit of £41 million and earnings per share (EPS) of 12.3p. It paid a full-year dividend of 11p a share.

As inevitable as this warning is in a Brexit scenario, it's still not what the market wants to hear. Foxtons, which did trade as low as 50p very briefly on Friday in a freak trade, is down around 23% Monday at 103p.

Brexit does nothing to improve the short-term outlook for Foxtons, which was already struggling as speculation grew that a crash in London house prices was becoming more likely. A Brexit-driven recession as international companies repatriate employees will not help.

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