Inside Track: Foxtons nears a crucial decision on its upcoming float

 
David Hellier
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THE FORTHCOMING flotation of Foxtons, the ultra entrepreneurial London-focused estate agency, is to move a step closer this weekend with the setting of a price range for the new shares that will shortly be coming onto the stock market if all goes well.

Management’s investor roadshow begins properly on Monday and will take in London, New York and some of continental Europe.

The flotation will be an important test of the recovering London new issues market, which has just finished its summer lull before what many expect will be a busy autumn.

Foxtons has a colourful track record and therefore might not have earned the fulsome trust of all institutions; and many will be looking to see how BC Partners, the private equity group that owns almost half the shares, decides to price its asset.

Many flotations in previous years ended up causing acrimony among the buy-side firms for what they saw as unrealistic valuations being demanded by sellers, but more recent issues, such as Partnership, seem to have been characterised by commendable restraint.

Those looking to value Foxtons, a task which is being led by Credit Suisse and Numis, will point to the strong performance of rival estate agency group Countrywide.

Countrywide floated in March this year with an issue price of 350p and investors have seen this price rise to a healthy 550p, putting the group on around 16 times 2014 earnings.

Market sources expect Foxtons’ bankers, which also include Canaccord and Rothschild on this deal, to price the shares at something of a discount to Countrywide, given the group’s track record – its previous incarnation had to be rescued – and its cyclical nature.

Interestingly the company, which has a somewhat brazen approach to its public image, decided not to appoint a financial public relations firm to take it through this particular process.

That’s another reason to follow this float carefully.

MORGAN STANLEY WARMS TO LLOYDS
Rival banks were a tad amused yesterday by a research note from Morgan Stanley banking analyst Chris Manners re-rating Lloyds Bank’s target price from 93p to 100p. Back in May Manners was looking at a far more modest 54p before upgrading this to 93p only a few weeks ago in August.

Yesterday’s re-rating by Morgan Stanley cites the general pick-up in the UK economy, combined with the expected success of the government’s Help to Buy housing scheme as factors that will and already have assisted Lloyds’ share price.

But those of a more cynical nature were suggesting it won’t be harmful to Morgan Stanley that its research analyst is so bullish at a time when the government needs to select banks to sell some of its shareholding in Lloyds.

ROYAL MAIL RESEARCH
If it goes ahead, the privatisation of the Royal Mail will surely be the highlight of the autumn’s London flotations, with retail investors likely to play a major role in the offering.

Previous issues this year have largely been launched without any research from unconnected banks (those not working directly on the deal as advisers, bookrunners or underwriters) but this one, partly because of its size, is likely to be followed.

Banks like JP Morgan, which acted in the recent Belgian Post issue, are expected to follow the stock, partly on the basis of their expertise in the sector and partly on account of the company’s sheer size.

Where they enter the process remains to be seen.

david.hellier@cityam.com