Foxtons Group PLC (LSE:FOXT) shares fell on Thursday as London's leading estate agency said it is cautious on the outlook for the first half of 2023 although it expects its 2022 revenue and adjusted operating profit to be ahead of market expectations.
In a trading update, Foxtons said it expects the first half of 2023 to be more challenging than the prior year with a more subdued sales market as a result of higher interest rates and general economic uncertainty, as well as inflationary pressures. However, it added, Lettings revenues are expected to remain resilient despite these headwinds.
Foxtons said: "Whilst the group is cautious about the sales market outlook, the steady reduction in mortgage rates from the elevated levels seen immediately after the mini-budget is encouraging and may lead to more favourable markets as the year progresses."
For the year ended 31 December 2022, Foxtons said its Lettings, Sales and Financial Services businesses all delivered revenue growth in 2022, with group revenue ahead of market expectations at circa £140mln, up by around 11% year-on-year, and with adjusted operating profit also ahead of market expectations.
The company noted that non-cyclical revenues from Lettings and Financial Services, which enhance the group's earnings resilience, now represent around 65% of group revenue and reflect significant growth in Lettings.
The company pointed out that it invested £10.6mln in Lettings acquisitions in 2022, with its Lettings portfolio now at circa 26,500 tenancies. The group said it will continue to target further acquisition opportunities as part of its strategy to deliver attractive total returns on invested capital and improve the resilience of its revenues.
Foxtons said its strong balance sheet has been maintained, with around £12mln of net cash as of 31 December 2022. Dividends paid in 2022 totalled £1.5mln and a further £4.9mln was returned to shareholders through share buybacks in 2022, with over £10mln returned since the buyback programme was restarted in December 2020.
In the update, Guy Gittins, Foxtons CEO, commented: "Much has been achieved in a short period and it is great to see some of the team's hard work reflected in the 2022 results. The economic outlook for the year ahead remains uncertain, but we have a growing portfolio of non-cyclical revenues, and a refreshed operational strategy to rebuild Foxtons' estate agency DNA and return the business to its position as London's go-to estate agency."
The company also said an operational review of the group is nearing completion covering all aspects of the business, resulting in a plan focused on driving growth and rebuilding Foxtons' estate agency DNA. This will require investment in brand and people, including ensuring sufficient headcount capacity across its branch network, and the ability to better leverage its data and technology. Cost action already taken, alongside continued disciplined cost control, will self-fund the majority of this investment, it added.
Details of the operational review and outcomes will be presented alongside the company's 2022 full-year results on 7 March 2023.
In early morning trade on Thursday, Foxtons' share price was 2.6% lower at 37p.