Foxtons (LSE:FOXT) has lowered its profit expectations after challenging conditions in both the UK sales and lettings markets affected trading during the first half of the year. The London-focused estate agent said recent changes introduced under the Renters’ Rights Act, combined with subdued property sales activity, have created short-term pressure on earnings despite expectations for longer-term benefits.
Lettings changes and weak sales impact first-half performance
The group said the abolition of fixed-term tenancy agreements under the new Renters’ Rights Act led to higher tenancy termination rates, particularly among student renters. As a result, Foxtons reversed approximately £3 million of previously recognised revenue, reflecting the disruption caused by the transition to the new regulatory framework.
While the company believes the reforms will ultimately increase demand for professional lettings and property management services, the immediate impact has weighed on first-half results.
At the same time, the residential sales market remained subdued as political uncertainty, conflict in the Middle East and higher interest rates continued to dampen transaction volumes.
Cost savings help offset market pressures
In response to the softer market, Foxtons implemented a range of cost-saving measures, generating annualised savings of £4.5 million during the first half. Around £3 million came from a targeted efficiency programme, with additional savings achieved through relocating the company’s headquarters.
Despite resilient performance in the lettings business and continued revenue growth within financial services, adjusted operating profit for the first half is expected to decline to approximately £8.5 million, compared with £12.3 million in the same period last year.
The company now expects full-year adjusted operating profit of between £17 million and £19 million, with earnings weighted towards the second half as seasonal lettings activity improves and tenancy termination rates begin to normalise.
Investment outlook
Foxtons continues to benefit from stronger financial fundamentals following several years of improving profitability, lower debt levels and positive cash generation. Its strategy of increasing recurring lettings income also provides greater resilience than a business focused solely on residential sales.
However, near-term earnings remain under pressure from weaker housing transactions, margin challenges and working capital headwinds. Although the shares trade on an undemanding valuation and offer a dividend, technical indicators remain weak, reflecting cautious investor sentiment.
About Foxtons
Foxtons Group is one of London’s largest estate agency businesses and the capital’s leading lettings brand, managing more than 32,000 tenancies through its network of branches. The company operates across residential lettings, property sales and financial services, with a strategy focused on expanding recurring lettings income while growing its sales and mortgage advisory operations.
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