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UK estate agent Foxtons makes $1.3bn share market debut

LONDON: British estate agent Foxtons enjoyed a strong stock market debut as its value rose to more than 778 million pounds ($1.25 billion) in early trading, despite some concerns that its core property market might be overheating.
Foxtons said it had sold a 60 percent stake for 230 pence per share, the upper end of its 190 pence to 230 pence per share range, and giving the company a valuation of 649 million pounds.
Its shares opened 20 percent above the offer price, and by 1153 GMT were trading up at 276 pence, off an earlier high of 286 pence.
London-focused Foxtons is the latest housing-related company to float on the back of Britain’s recovering housing market, following nationwide agency Countrywide and housebuilder Crest Nicholson earlier this year.
Both have seen their share prices rise more than 50 percent since going public, but some investors last week said they thought that Foxtons was coming late to the party and too exposed to London.
While Britain’s housing market has been boosted by signs of an improving economy as well as help from the government and the Bank of England to ease access to finance, the scale of recovery has raised concerns about a new property bubble.
Data last week showed British house prices recorded their fastest rise in almost seven years.
However, while there are some concerns over proposed further government measures to stimulate the market, housebuilding analyst Tony Williams said London was not experiencing a market bubble and rising interest rates in coming years would act as a natural brake.
“A bubble is when you have people buying and flipping within the space of months. What you have in London is a shortage of supply and a planning system that gums up the works,” he said.
“This particular run will end some time between the back end of 2014 and 2016 as rising mortgage rates will cause the market to plateau,” he said, referring to the end of cheap money as the global economy recovers.
Foxtons, which last year got more than half of its revenues from its lettings business, is focused on expansion within London, home to 40 of its 42 branches, and has said it is aiming for five to 10 new branch openings a year between 2014 and 2018.
But Jefferies analyst Anthony Codling said that while estate agents were the best way to gain exposure to the UK housing market, prospects were better for nationwide firms.
“We see more significant potential for house price growth outside of London than inside,” he said in a note.
Jefferies worked on Countrywide’s float.
House prices fell by 16.3 percent in London after the financial crash and by 16.6 percent across England and Wales, according to Land Registry data. While London prices have recovered to 6 percent above their pre-crash peak, in the rest of the country they are still 10 percent below.
Foxtons’ share offering, which was oversubscribed, raised 335 million pounds for selling shareholders, including majority owner BC Partners, the private equity group, and company employees.
The company, known for its cafe-style branches and the distinctive Mini Cooper cars driven by its sales staff, also raised 55 million pounds from selling new shares to reduce debt.
A source close to the deal said most of the demand had come from investors in the UK and the US, with buyers confident that housing market transactions volumes were far from peaking and Foxton’s strong lettings business would also support its value.
Based on forecast earnings multiples, that valuation puts it at a premium to peers such as Countrywide, the source said.
The float marks a milestone for BC Partners, which has had a chequered history with Foxtons since first buying it for about 360 million pounds in 2007. The estate agency came to epitomise the woes of the private equity industry as plummeting sales pushed it into breach of the terms on its debt.
BC, which ceded control of Foxtons to its lenders in 2010 before taking majority ownership again last year, is on track to make a return of close to three times its investment, a person familiar with matter said.
Credit Suisse and Numis Securities acted as joint bookrunners on the offering.

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