Foxtons shareholder calls for estate agency to ‘copy Countrywide’ and be put up for sale

A leading Foxtons shareholder has called for the company to be sold, criticising its management for operational under performance and poor capital allocation.

Canadian investment group Converium Capital, which has a 2% stake in the agency, says the company has continued to underperform and that consequently, investors have lost more than £650 million, or 87%, of their investment over the last eight and a half years as its share price has become ‘chronically depressed’.

In an open letter to Foxtons, Converium boss Michael Rapps (pictured) says the best route for investors would be to see the company sold for a 200% premium over its current 33p share price.

At the height of its share price performance, the stock traded at nearly £4 a share.

Converium notes that Foxtons’ competitor Countrywide underwent a similar process in 2020 following several years of operational and financial struggles, and after trading at 50p during Covid-19, a bidding war emerged for Countrywide that eventually resulted in Connells Limited acquiring Countrywide for 395p per share.

Cost reductions

“Over the last several months, we have engaged with members of Foxtons’ management and Board about opportunities to increase shareholder value, including reducing the company’s cost structure with the goal of returning margins to historical levels, implementing revenue-enhancing initiatives, divesting select non-core businesses and repurchasing shares,” says Rapps in his letter to Foxtons chairman Nigel Rich (pictured).

“Unfortunately, Foxtons has continued to underperform. Whereas Foxtons historically generated operating margins of more than 30%, over the last five years the company’s operating margins have oscillated between nil and 10%.

“We believe much of this margin erosion is due to insufficient cost controls.”

Rapps also highlights Foxtons’ poor capital allocation, namely how it issued £22 million of equity at 40p in April 2020 despite have no debt, an undrawn credit line, £21 million of cash on hand and access to various government assistance schemes.

Within its annual results announcement at the beginning of this month, Rich made several references to initiatives which may have been prompted by Converium’s concerns including appointing former boss Peter Rollings as a non-exec director, and several references to its improving margins.