FTSE Listed Stocks Combatting Uncertainties of Covid-19 Pandemic: Foxtons Group PLC & Brewin Dolphin Holdings PLC

The lockdown scenario to contain the Covid-19 pandemic has impacted the business operations globally, and they are forced to adopt several measures to preserve liquidity for business functioning such as suspension of dividends, payout reductions, furloughing employees, reducing operational and capital expenditures. However, some businesses are compelled to go even beyond and seek additional revolving credit facilities, access to government funding or eventually raise funds through the placement of ordinary shares. Today, we will discuss a real estate agency Foxtons Group PLC and a wealth management firm, Brewin Dolphin Holdings PLC. The stock price of both the companies surged yesterday (at the closing of 17^th April 2020) by 22.40 per cent and 18.12 per cent, respectively, following their first-quarter trading update, while Foxtons has successfully completed the placement of ordinary shares as well, to raise £22.0 million. Let’s walk through the trading updates in light of their respective business model, financial position and outlook.

Foxtons Group PLC (LON:FOXT)

Foxtons Group PLC is an FTSE All-Share listed company, which is based in London, United Kingdom and operating as real estate agency since 1981. It serves through over 50 interconnected branches in London.

(Source: Annual Report)

Key Inputs of FOXT’s Business Model

• Reach: By leveraging its network of 50 branches, the group try to reach the maximum number of people with more access to properties.
• People: By leveraging the knowledge and experience of employees, the group assist its clients through the complicated process of selling, buying and letting a property.
• Technology: The group serves property letting, sales and mortgage broker services by using data science expertise, digital platforms and its proprietary technology.

The group operates its business through three segments:

• Letting: It is related to
  • tenant finding, rent collection and property management.
  • Contributed 61.5 per cent of revenue in 2019.
• Sales:
  • It refers to the sale of new and used properties or homes.
  • Contributed 30.5% of revenue in 2019.
• Mortgage Broking:
  • It is operating under the Alexander Hall Brand.
  • Contributed 8 per cent of revenue in 2019.

Significant Updates of 2020

• 17^th April 2020: The group has successfully completed the placement of 54,993,367 new ordinary shares to raise about £22.0 million. The net proceeds from the placement will be used to reimburse the revolving credit facilities and maintain substantial liquidity to weather the period of unprecedented disruption.
• 2^nd March 2020: The group has announced the acquisition of London Stone Properties Limited from its owner Hilary Stone, at the consideration of £2.2 million. London Stone’s has reported unaudited profit before tax and revenue at £0.7 million and £1.5 million, respectively. Hence, this acquisition is likely to bolster the capabilities and business model of FOXT.

Q1 Trading Update – Reflecting Performance, Actions Taken in Response of COVID-19, and Proposed Placing

• As noted on 20^th March 2020, financial performance in the first 11 weeks of 2020 had been in line with the Board’s anticipations. During the first two months of the year, the company has seen steady growth in sales commission pipeline.
• The fundraising was announced alongside first-quarter results, which showed revenue was down by 3 per cent to £0 million from £23.8 million. The fall was accounted by the introduction of a tenant fee ban was £0.8 million in the period, which prevented agents from charging client’s additional fees on new lettings, i.e. lettings revenue decreased by 5 per cent to £13.9 million (Q1 FY19: £14.6 million). Sales revenue for the first quarter was flat at £7.1 million (Q1 2019: £7.1 million), while revenue from mortgage broking tumbled 5% to £1.9 million (Q1 2019: £2 million).
• In light of Covid-19 impact, the management has taken several actions such as cutting its expenses by two-thirds, furloughing 750 employees out of 1,100 employees, closing all the branches, asked employees earnings over £40 thousand to take a 20% pay cut, and decreased executive pay by the same level.
• On 31^st March 2020, the cash balance, including the fully drawn revolving credit facility (RCF) of £5.0 million, stood at £21.9 million.
• The equity raises, amounting to 19.9 per cent of the company’s issued share capital.
• In the first three weeks of lockdown, the commissions earned were down 47% against the previous year and were expected to fall further in the upcoming weeks.

Share Price Performance

Daily Chart as of April 17th, 2020, after the market close (Source: Thomson Reuters)

FOXT’s shares closed at GBX 47 on 17^th April 2020. Stock's 52 weeks High is GBX 98 and Low is GBX 27.

Short-Term Future Impact of the Coronavirus

As per the property market in London, the Real Estate sector has been facing several challenges, driven by the necessary measures taken to contain the Covid-19 pandemic. Preceding to the lock-down, the company was trading in line with the Board’s expectations in 2020 and also started the year 2020 in a robust financial position, with more than £15 million of cash balance and no external borrowings and an increasing sales commission pipeline. Currently, the management considers it prudent to raise additional capital to enable the company to preserve the vital business capability to support customers when the Coronavirus pandemic subsides and maintain liquidity in a reasonable worst-case scenario.

Brewin Dolphin Holdings PLC (LON:BRW)

Brewin Dolphin Holdings PLC is a wealth management company. It was founded in 1762, and currently it is operating with over 1,864 employees and 32 offices across the United Kingdom (UK). It is listed on the London Stock Exchange as a constituent of FTSE 250 index. The group currently manages, on a discretionary basis over £41 billion of funds with a network across the UK, the Republic of Ireland and the Channel Islands.

(Source: Company Presentation)

Strategy to Focus on Innovation and Growth

• More choice for more Clients:
  • Continuous focus on innovation and hiring new talent.
  • KPI: Net promoter score stood at 51.2% in 2019, as against 44.3% in 2018.
• Development of client-centric proposition and experience:
  • Streamlining communication and acquisitions.
  • KPI: Overall customer satisfaction rate was 8.6 on 10 in 2019.
• Building a better culture for employees:
  • Training employees for the enhancement of expertise and capabilities.
  • KPI: Employee engagement stood at 87% in 2019 versus 83% in 2018.
• Building a platform for sustainable growth:
  • Developing the client management system and maintaining capital to tap future opportunities.
  • KPI: Capital adequacy ratio stood at 291% in 2019, which is above their risk appetite (150%).

Management Change and Acquisition in the Recent Past

• 29^th January 2020: The group announced the appoint of Robin Beer as the Chief executive officer as David Nicol will be retiring from his position on 14^th June 2020.
• 1^st November 2019: The group announced that Investec Group was acquired by its subsidiary, Brewin Dolphin Wealth Management Limited for the consideration of €44 million (post adjusting the surplus capital).

Trading Statement for the Six-Month Period Ended 31st March 2020 (as on 17th April 2020)

• In the second quarter of 2020, the company has delivered positive discretionary net flows of £0.4 billion, reflecting a 3.8 per cent of annualized growth rate (Q1 2020: £0.1bn, 1 per cent of annualized growth rate).
• Total funds for Q2 FY20 reduced by 14.6% to £41.4 billion (Q1 FY20: £48.5 billion), with a decrease of 14.6 per cent in discretionary funds at £35.7 billion (Q1 FY20: £41.8 billion).
• During the quarter ended 31 March 2020, the MSCI WMA Private Investor Balanced Index tumbled 15.2 per cent, and the FTSE 100 Index fell by 24.8 per cent.
• From the perspective of the first half of 2020 performance, the total net flows stood at £0.6 billion, signifying an annualized growth rate of 2.7 per cent.
• Led by continued demand for the advice-led services and robust flows in MPS, the discretionary net flows were £0.5 billion.
• Total funds for H1 FY20 stood at £41.4 billion, a decrease of 8 per cent from the previous period (FY 2019: £45 billion), with a decrease of 11 per cent in discretionary funds at £35.7 billion (FY 2019: £40.1 billion), driven by negative market performance.
• On year on year basis, the total income surged by 8.3 per cent to £175.8 million (H1 FY19: 162.3 million), including £9.3 million as a result of recent acquisitions.

Share Price Performance

Daily Chart as of April 17th, 2020, after the market close (Source: Thomson Reuters)

BRW’s shares closed at GBX 251 on 17^th April 2020. Stock's 52 weeks High is GBX 377.20 and Low is GBX 130.

FY2020 Outlook Insights

Currently, the market weakness has shaped a high level of uncertainty as to the outlook for the rest of FY20, and it is too early to quantify the impact of Covid-19 pandemic. The company is confident in the ability to capture the improved demand for financial advice vertical, at this time of uncertainty. It continues to be fully engaged with the clients as well as while meeting the strategic objectives. From the perspective of the market sentiment, the asset managers and custodians’ sector are improving.

Disclaimer

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