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The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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January 25, 2024

FOXT, SRC, EPWN, MTO | Comment – quantity surveyors, the great survivors

Company news

Foxtons Group (FOXT, 53p, £158m mkt cap)

High profile London estate and lettings agent. FY (Dec) trading update.

Guidance: “Foxtons has continued to deliver against its operational turnaround plan and outperform the market. For the year ended December 2023, both revenue and adjusted operating profits are expected to be ahead of consensus market expectations”. Rev +4.8%, c. £147m (consensus, £144.5m); adj op profit +0.7%, c. £14m (£11.8m).

Trading: “Improvements across data, core processes, culture, and brand successfully unlocked the value of the scalable Foxtons Operating Platform. These improvements, alongside investment in fee earners, delivered significant market share growth across Lettings, Sales and Financial Services in the year”. Lettings revenue (c.70% of group total) c. +16% to over £100m. Two Lettings acquisitions, Atkinson McLeod and Ludlow Thompson, for £15.2m, adding over 2,800 tenancies to the portfolio. Sales, -14%, “outperformed the market [-22%], delivering significant levels of market share growth versus 2022 and entered 2024 with an under-offer pipeline significantly ahead of the prior year”. Annualised cost savings of c. £3m will be realised in 2024 as the G#group delivers synergies related to the November 2023 acquisition of Ludlow Thompson and consolidates certain branches within the Foxtons network by leveraging lease exit events. These savings have resulted in a one-off restructuring charge of c.£4.3m in 2023, of which c.£3.3m is cash related and c.£1.0m is non-cash. The cash charge relates to branch closure and vacancy costs, the majority of which will be incurred over a three-year period.

Outlook: “Lettings is expected to remain resilient in 2024. As supply and demand dynamics have largely normalised, rents are expected to stabilise and remain at historically elevated levels, whilst improvement in the supply of available rental properties provides a good opportunity to deliver further market share growth. In Sales, the group entered 2024 with an under-offer pipeline significantly ahead of the prior year despite weaker market conditions, which should support a good level of year-on-year revenue growth in Q1. Furthermore, continuing to deliver the Sales market share levels achieved in H2 2023 is expected to drive further Sales revenue growth through 2024. Buyer demand has grown as mortgage rates have begun to normalise, with good levels of growth seen in recent weeks as the first mortgage products are released with rates below 4% since the September 2022 mini-budget. Any sustained reduction in interest rates is expected to spur significant further growth in buyer demand. Through 2024, the group will continue its focus on delivering operational enhancements to drive further growth and continue to decouple earnings from sales market cycles. By doing so, the group is well positioned for its medium-term growth ambition to deliver £25m to £30m of adjusted operating profit”. FY results, 5 March.

SigmaRoc (SRC, 62p, £693m)

Heavy construction materials group active in the UK, Channel Islands and Benelux. FY (Dec) trading update.

Guidance: “The group is expecting to report underlying FY 23 EBITDA and EPS ahead of current consensus expectations [rev, £597m; u-lying EBITDA, £110m]. Rev +8%, c. £580m (+2% LFL), despite a 4% reduction in volumes; u-lying EBITDA c. + c. 10%, to exceed £116m; margins +110bps, 20%; u-lying EPS greater than 8p, despite significant increase in finance costs while absorbing the dilution of the February 2023 cash raise which was deployed across 2023”. YE 23 leverage expected, below 1.6x (HY 23, 1.7x).

Trading: “The second half of FY 23 saw continued good trading in most markets. SigmaRoc’s diversified model and end market exposure continued to provide resilience in the latter part of the year, with industrial mineral markets and infrastructure outperforming expectations and offsetting softer residential construction markets. The group implemented multiple restructuring and cost saving initiatives across the UK and the Nordics, translating into annualised cost savings of c. £4m”.

Outlook: “The current outlook for FY24 remains unchanged, despite heavy snowfall at the start of the year in parts of Europe. Steel and other industrial demand had a positive last quarter running into 2024. These trends are likely to persist into 2024, with the potential for improvement in residential construction in the second half as expected interest rate cuts positively impact demand. The Board remains confident in the group’s ability to deliver a successful integration of the newly acquired companies, and to build from this combination a leader in lime and limestone. The prevailing conditions throughout Europe present both headwinds and tailwinds in the various markets which the Board is actively managing and taking advantage of”.

Epwin Group (EPWN, 74p, £107m)

Low maintenance building products manufacturer. FY (Dec) trading update.

Guidance: “Further to the trading update announced on 27 November 2023, trading remained resilient through to the end of the year, with FY 2023 revenues in line with market expectations [£350m]. The group has continued to effectively manage labour, energy and other inflationary cost pressures with margins recovering to pre-pandemic levels. Raw material cost inflation has continued to ease, although PVC resin prices remain at elevated levels. As a result, the group now expects to report underlying operating profit for FY 2023 towards the upper end of the range of current market expectations [£22 – 25m], which represents a significant increase over FY 22. Cash generation has remained strong and the group expects to report covenant net debt better than current market expectations [£17.9m] of c. £14.5m (FY 22, £17.9m), year-end leverage of less than 0.5x adjusted EBITDA”.

Trading: “Good progress with strategy, including continued operational improvement, new product development, integrating recent value-enhancing acquisitions and sustainability initiatives.

Outlook: “These results indicate that the current drivers for the group’s range of low maintenance, energy efficient and recyclable building products are resilient and trading in the first weeks of 2024 has been in line with the Board’s expectations. The Board remains confident of executing the group’s strategy and in the strength of the medium and long-term drivers of its markets, despite the short‐term macro-economic outlook”. FY results, 10 April.

Mitie Group (MTO, 100p, £1,339m)

UK facilities management group. Q3 (Dec) trading update.

Guidance: “The group remains on track to deliver guidance for operating profit before other items of at least £190m in FY 24 (FY 23, £162m)”. Rev +14%, £1,146m, “reflecting continued growth in Key Accounts and Projects upsell, contract re-pricing and infill M&A. Good sequential trading momentum, with Q3 revenue 6% above Q2 and 9% above Q1. Two strategic acquisitions completed for a consideration of £21m, taking the total year-to-date investment in higher growth, higher margin infill M&A to £65m”. Net debt, £122m (FY 23, £44m).

Trading: Business Services – rev +7% Y/Y, £381m, “benefiting from contract re-pricing, recent acquisitions and variable works (largely driven by our intelligence-led approach to tackling elevated levels of crime in the retail sector) and net wins, partially offset by scope reductions on contracts such as the Afghan Relocations and Assistance Programme”. Technical Services – +17%, £337m, “benefiting from the growth in businesses acquired in prior periods, net wins, and continued growth in projects and variable works”. Central Government and Defence (CG&D) – +19%, £237m, “primarily driven by projects work across a number of the largest CG&D contracts, such as FDIS and DWP”. Communities – +17%, £191m, “driven by contract re-pricing and an increase in the provision of services for the Immigration Escorting Services contract”.

Outlook: “We expect good revenue momentum to continue into the fourth quarter, albeit against a very strong prior year comparative for Projects work. As such, Q4 revenue growth is expected to moderate to mid-single digits, still comfortably ahead of the wider FM market. Our strong performance, combined with the ongoing delivery of margin enhancement initiatives, means that the Group remains on track to deliver operating profit before other items of at least £190m in FY 24”.


If Charles Darwin had worked in Construction, what job might he have taken? My latest column for Property Week.
“Blessed are the quantity surveyors, to paraphrase St Matthew, for they shall inherit the Earth. Just like the cockroaches. That’s not to denigrate QSs. Nor cockroaches. Rather, both species are examples of construction’s and nature’s great survivors.”

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