Foxtons leads way as London awaits batch of new issues

 
David Hellier
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THERE are still a few days of the summer holidays left for some, but yesterday felt like a proper beginning of term day for the rest of us.
For one thing, David Cameron returned from his Cornwall holiday to call for the return of Parliament tomorrow to consider the merits of military intervention in Syria.
As ever, the stakes are immense and there was a sense of deja vu for many, as former PM Tony Blair, the man who landed the UK with an unwinnable situation in Iraq, argued the case for action again, this time in Syria.
Financial markets wobbled but not uncontrollably. At this stage there is a feeling that, however awful the situation in Syria might be – and the pictures last week of the children killed by chemical weapons were beyond awful – it does not yet represent a major threat to the world economy. This might change, of course, as the tensions between Russia and the US, for example, play out over the next few days.
In the London markets there were two notable deals to greet folk as they returned to their desks; a proposal from Dubai Aerospace to take a large stake in BBA Aviation and the intention to float announcement from estate agency chain Foxtons.
Foxtons, which acts mainly on property transactions between £200,000 and £1.4m, is believed to have brought forward its announcement by a few days to get in ahead of an expected pipeline of other IPO candidates. That augurs well for the London IPO market as we get ready to enter the crucial fourth quarter of the year.
After a torrid time in 2012, when the IPO market pretty well closed up, this year has witnessed a marked improvement in sentiment and activity in London, especially in the property and insurance sectors. Technology and resources companies still feel a little unloved, but that’s another story.
Foxtons, which has had a chequered financial history over the past few years, will issue £55m worth of new shares and management – as well as the private equity investors BC Partners – will also sell a percentage of their holdings.
The issue will hope to benefit from the successful flotation earlier this year of the Countrywide estate agency chain, whose shares have risen strongly since the group came to market.
Foxtons, which has its major focus in London, comes to market on the back of strong financial figures. Revenues in the first half of the year, at £62m, are 10.5 per cent up on last year, with earnings up 14.3 per cent.
Those who want to take a bearish stand on this would point out that the London housing market is currently experiencing a bubble, spurred on by the government’s Help to Buy scheme, and that when this bursts there will be an almighty slowdown that will pare profits to the bone.
Those advising on the issue say that Foxtons is well placed to implement a low cost expansion in the event of the market’s recovery continuing.
Sadly, as is usual these days, there will be no independent research on the company ahead of the IPO. Advisers to the issue have decided against giving unconnected analysts access to the management team until after the shares start trading, arguing that such analysts often only have an incentive to be negative on a stock.
Given the group’s history, doubts over the sustainability of the market, and the fact that management is selling some of its stock in the issue, investors have a right to be cautious on this one.
Advisers, including three Credit Suisse bankers who worked on the Countrywide deal, will do well to price conservatively unless they detect overwhelming institutional support for the issue after they have completed their roadshows in London, New York and continental Europe.
david.hellier@cityam.com
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