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Bubbly all round

20 Sep 2013 By Quentin Webb

Foxtons has made a fittingly brash market debut. The famously pushy London estate agent floated at the top of its price range, for a 649 million pound ($1.04 billion) valuation. A 21 percent bounce in the stock quickly added almost 140 million pounds more in value. Never mind the eye-watering prices for London houses: big investors clearly think the capital’s property market is unstoppable.

The deal vindicates majority owner BC Partners, which bought high back in 2007, lost control to lenders, and then bought back. It should now make a solid return. UK property website Zoopla, which is also contemplating a float, must be cock-a-hoop.

BC and management were even able to sell a majority of shares. That’s a bit of a no-no nowadays: investors generally want private equity firms like BC to stay invested for longer, keeping a sizeable stake. Here the desire for liquidity in a smallish stock came first. Sheer weight of demand, which also explains the share-price pop, must have helped too.

This was not cheap – not that you’d expect anything else from the shock troops of urban gentrification. The 230 pence-a-share price is roughly 18 times next year’s earnings. After the share bounce that looks more like 22 times. Countrywide, a less London-centric rival which has soared since floating earlier this year, fetches 17 times forward earnings, Starmine shows.

Can all this big money be wrong about London? Housing is ridiculously pricy. But the government is foolishly propping up the market, foreign cash keeps pouring in, and an economic recovery is stirring. Foxtons is also moving, with the squeezed middle classes, into postcodes previously deemed too distant and too grubby. Besides, sales volumes matter more than prices, and far fewer houses are changing hands than before the financial crisis. Rising volumes would be great news.

That said, this is the very definition of a cyclical business. Thin volumes, rapid price rises and lots of non-professional money usually spell trouble, whatever the market.

For now, Foxtons’ float has mirrored London housing this year: huge demand from buyers willing to pay what they are told, and still being rewarded with quick-fire double-digit returns.


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