London estate agent Foxtons has announced its intention to float, sounding the opening fanfare in the second estate-agency sales pitch to investors this year. The company wants to raise £55m to pay down all its outstanding debts.
The parallels with the flotation of Countrywide (CWD) in March are striking. Both groups were bought by private equity companies at the top of the market in 2007 and then underwent complex financial restructuring as boom turned to bust. For both, flotation is seen as the best way to erase a messy legacy of debt.
Countrywide's shares have risen 52 per cent since their March debut, even though they were listed towards the top of their mooted range. The government's Help to Buy initiative, combined with extremely low mortgage rates and a slowly recovering economy, have buoyed shares across the housing sector. Foxtons' owner BC Partners will be hoping to replicate that success, helping to erase the memory of a painfully-timed acquisition.
Foxtons was founded in 1981 and now has 42 branches, almost all of which are in London. The average price of the properties it sold last year was £476,000, placing it towards the upper end of the London market. Interestingly, however, only 44 per cent of company revenues came from the sales business, with lettings providing 53 per cent. This and its focus on the already booming London market may hamper the company's efforts to be seen as a recovery play.
Yet management point out that, even in the capital, transaction volumes since 2008 have been about 45 per cent down on their 2000-06 average, leaving scope for growth. They also have ambitious expansion plans, with five to 10 branch openings expected in each of the next five years.
Even if a recovery in London transaction volumes does not materialise, Foxtons is conspicuously profitable. Adjusted cash profits were £38.3m in 2012, giving a margin of 32 per cent. That compares with 10 per cent for Countrywide in the first half. Foxtons' superior profitability may be explained by higher than average commissions. Over the past decade the company has charged 2.5 per cent of the sales price, on average, for what it claims is a premium service.
