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Mike Goodman

April 2010

Outlook for this year is uncertain

THE big estate agency groups have all reported their 2009 profits and the figures look good. But all admit the outlook for this year is uncertain.

Jeremy Helsby , chief executive of Savills, warned of  “unpredictable conditions” when he announced last month pre- tax profits of £13.5 million in 2009 against a £7.7 million loss in 2008. 

Predictably, the star performer was UK residential agency where revenue rose 11 percent to £73 million. But cost cutting meant profits rose from £2.8 million to £11.8 million.

 Helsby is cautious about immediate future trends and warns  about inertia in the market around election time .

He also warns revenues in the Asia Pacific region could be affected if China unwinds its state stimulus packages. Last year Asia Pacific contributed 38 per cent of Savills revenues.

 However, commercial property transaction business looks set to continue a recovery this year.

 Last year, Savills’ revenue from this source fell 31 per cent to £35.7 million but investment demand for commercial property has now returned.

 Savills’ pension fund deficit rose from £24,6 million to £37.7 million duting 2009  but this scheme  has finally closed with 300 members agreeing a transfer to defined contribution schemes.

 Savills staff will receive £60 million in bonuses while shareholders receive  total of 9p a share, the same as 2008.

 The shares shed a few pence to 360p, near the 12-month high. Last year, Savills shares recovered 43 per cent to 320p.

 During the decade 2000 to 2009,  Savills shareholders would have nearly doubled their money, and enjoyed a dividend yield of about five percent.

 For shareholders in other companies, the “noughties” were a lost decade as the FTSE 100 actually fell.

No Achilles HEAL

EXCUSE the pun, but I believe ‘No Achilles HEAL’ is  the title of a stockbroker circular on LSL Propoerty Services, which paid £1 for Halifax Estate Agents Ltd (HEAL) .

 The analysts evidently believe that the acquisitionof HEAL, completed on January 15, will boost LSL profits once things have settles down , rather than the former Lloyds bank agency proving a burden.

 Simon Embley, group chief executive officer at LSL, expects HEAL “to make a negative contribution during the first half” but move into profit during the second half of this year.

 HEAL would  “ make a significant contribution”  if and when market returns to normal, Embley adds.

 “We have taken a business which resembles a bank  and we are turning it  into a  proper retail estate agency. We have cut costs, let go head office, and marketing staff  but not the people at the sharp end.”

LSL received £27 million cash from Lloyds banking group as part of the deal and Embley expects to spend £14 million of this money on restructuring and rebranding, so LSL may well end up with some money to spare.

 LSL has already rebranded the HEAL agencies and shut 13 offices. Embley reckons these offices could not  make a profit even in a normal market.

 The LSL share price rose from 65p to 258 p in 2009, although it had fallen from 135p to 64p the previous year. Shares recently traded at near 300p

 LSL full year 2009 results published last month   show pre tax profits of  £16.6 million against a £6.2 million loss in 2008 . Underlying profit was up 55 per cent to £28.3 million. Group revenue fell, by 2.5 per cent to £158 million but costs fell 10 percent to £130 million.

 Earnings per Share nealry doubled to 18p, while basic EPS was 11.4p against a loss of 4.6p in 2008.  LSL resumes paying a dividend, of 5.4 p per share. Net debt is almost halved to £25.7 million.

 The estate agency business which includes Your Move and Reeds Rains, made £6.7 million profit, against a   £8.4 million loss in 2008. Sales were  up eight per cent to nearly 15,000, while letting income was up 25 per cent to £19 milllion.

 Despite the massive rebound in the LSL share price, and its turnround from loss to profit in 2009,Embley remains cautious about the housing market. He said, ”Our forecast is no more than 700,000 transations in 2010, against about 600,000 last year.“

 In a trading statement earlier this year, he told  shareholders, “Housing market conditions this year will be extremely unpredictable”, because of uncertainty over the economy, restricted mortgage lending , and the impact of higher taxes .

I think that sums it up.

More caution from Connells

STEPHEN Shipperley, chief executive of Connells also remains cautious despite profits recovering from £10,4 million in 2008 to £54.1 million in 2009.

He said:  “Despite the recovery last year we are a long way from a normal market.”

Shipperley describes the 2009 figure as “trading profit, without the aid of windfalls”. The 2008 windfall from the sale of Rightmove shares remains banked as a war chest.

He adds: “If 2008 was a year of damage limitation, then 2009 was the year we took advantage of a market that proved better than we imagined. Our market share rose 20 per cent, house sales recovered by 40 per cent on 2008, our average fee rose from 1.6 per cent to 1.8 per cent, our surveying, lettings and other businesses moved ahead.”

“There was a rush to complete purchases by the end of 2009 to take advantage of the Stamp Duty holiday, but even so, completions in January this year were eight per cent ahead of January 2008.

“Overall prices rose 10 per cent in 2009 and every single month we recorded some price inflation.”

Connells profits helped Skipton’s parent, the Skipton Building Society  enjoy a profit recovery,from £22.5 million to £63.5 million, despite a rise in bad debt provision from £35million to £44 million.

If you can’t beat ‘em.....

If you can’t beat ‘em  join ‘em. Rightmove shares have been riding high since the announcement in January that Google is to provide maps for the Rightmove website.

 Effectively this scotched the rumours in December that Google was to launch its own property web into the UK market and rival Rightmove.

 Rightmove’s 2009 results, announced late February, showed underlying profit up 2 per cent to £41.9 million. Revenue fell six per cent to £69.4 million, but costs fell 17 per cent to £27.5 million.

 The underlying profit margin rose from 55 per cent to 60 per cent. Underlying Earnings per Share rose 28 per cent to 30.5 p, helped by a buy back of 1.1 million shares at an average  484 p per share, about 150 p per share below the recent share price.

 At the end of 2009, Rightmove had no net borrowings but net cash of £3.4 million. Shareholders received a final 7p dividend making 10 p for the year.

 No doubt the mechanics of Rightmove’s success as a web site will de discussed elsewhere in this issue, but the “bottom line” looks good.

Foxtons re-finance

Private equity group BC Partners  finally sorted out the re-financing of Foxtons  earlier this year, but is rumoured to have made a near £100 million loss  in the process.

 BC Partners backed a £360 million buy out of the London based estate agency in summer 2007 at the height of the boom and under the refinancing deal is reported to have injected a further £50 million into the business and written off its Euro 50 million equity investment.

 Its banking partners in the deal,  Bank of America and Mizuho , agreed a debt for equity swap which gives them a majority stake.The management at Foxtons  is reported to be taking  a performance related stake of up to  20 per cent.

 A spokesman for BC Partners would not comment on these figures but said: “This reorganisation delivers a strong balance sheet which complements Foxtons’ strong trading performance”.

 He also pointed out that even including the additional equity provided, BC Partners stake in Foxtons represents only 2 percent of its investment fund which amounts to Eur 5.8 billion.

 As a postscript, the accounts of Foxtons Holdings Ltd,  recently filed at Companies House, reveal a £218 million loss for 2008.

 The operating loss was £13.3 million on turnover of £84 million, but there was a one-off £163 million write down of goodwill. Interest on bank loans totalled £39 million.

These figures are strictly historic and BC Partners maintain Foxtons is trading well this year and traded strongly in 2009.

Economists warn on housing

CAPITAL Economics, an economic consultancy believe the housing market recovery will be threatened by a future squeeze on finance and are among pundits who predict a “double dip” in the market.

 However,Capital enjoy a bearish reputation  having predicted house prices would fall by up to 25 per cent last year, when in fact they recovered.

 Capital’s experts also estimate that in the UK either incomes will have to rise 28 per cent or prices fall by that amount to make property affordable. The percentage is 26 per cent in France but 30 percent in Spain ,even more in some European states, and 40 per cent in Australia.