Savills profits plunge as interest rates hit transactions

Profitability at Savills (SVS) plunged in the first half of 2023 following a slowdown in property transactions. The estate agent’s revenues only dipped by 2.5 per cent year on year, but adjusted profit before tax tumbled by 72 per cent to £16.3mn. 

This was blamed on a “significant increase” in interest rates, which fuelled a “downward trend in real estate trading volumes” among both investors and occupiers. The group’s transaction advisory division, which is historically the biggest and most profitable, fell into a £17mn loss in the period, as both capital and leasing transactions dried up.

Savills is a familiar sight on UK high streets, but the group has a global footprint. This did little to protect it on this occasion, however. While underlying profit from the UK fell by a third to £31.6mn, the situation was made worse by Asia Pacific, where China’s recovery disappointed and profits dropped by 89 per cent to just £1.9mn. Meanwhile, continental Europe experienced the most significant reduction in activity, particularly in Germany, France and Scandinavia, and delivered a loss of £12mn. 

Savills had a strong balance sheet going into the downturn and, while its borrowings have risen, it still has a good chunk of cash to fall back on. It also managed to gain market share in the period as rivals struggled, and continued to invest in staff in order to “benefit from the recovery in due course”.

This is a sensible approach, and Savills may eventually profit from the difficult conditions that are rocking smaller estate agents. However, the short-term outlook is bumpy to say the least and management said that its “range of expectations for the year as a whole has reduced somewhat”. A forward price/earnings ratio of 13 isn’t enough to tempt us yet. Hold.

Last IC View: Hold, 977p, 16 Mar 2023