London, UK, 30 June 2021

Foxtons (FOXT): Initiation - Clear growth plans drive upside potential

Foxtons is at an inflexion point, in terms of both its underlying markets, which are recovering, and the next stage of its development. Revenues have fallen every year since 2016 but grew c 50% in Q1 and are now forecast to grow at a CAGR of 15% pa for the next three years, as sales are strong, lettings are picking up as the London market begins to normalise and Foxtons has been active with M&A. These positives are likely to be boosted by further M&A in lettings, as well as growth in 'Build to Rent' (BTR) and regional expansion. While our base case estimates imply a valuation below the current price, we value the shares at up to 129p based on our bull case scenario.

Our base case shows 2022e EPS of 2.4p, which gives a valuation below the current share price when we apply the average 2014/15 P/E of 17.5x. If we roll over our forecasts to 2023e, our EPS of 2.9p implies a valuation of 50.8p, much closer to the current price. However, we would argue that future growth may not be fully reflected in the share price or our estimates as we do not forecast acquisitions. Our bull case highlights the potential upside in forecasts, where Foxtons is particularly geared to further acquisitions of lettings books as well as growth from BTR, regional expansion and underlying markets. Our bull case scenario suggests potential 2022e EPS of 7.4p, which implies a valuation of 129p when the 17.5x P/E is applied.

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