Berenberg upgrades Countrywide, reiterates target price

Expecting strategic announcements from Countrywide's first market update following its recent profit warning, analysts at Berenberg said if the firm could find room for investment to improve its competitive positioning, brighter days could be ahead.

Berenberg upped its recommendation on Countrywide to 'hold' on Wednesday, stating that if the group was to invest in technology to reduce the cost of delivering its core sales and lettings business and come up with a reasonable digital strategy, it could see a swift return to form.

Countrywide's dwindling core sales and lettings business was behind the profit warning, with management now expecting EBITDA to be approximately £65m, 12% shy of a consensus forecast of £73.8m.

Management will be short of a chief executive after Alison Platt resigned on Wednesday, less than a week after issuing a profit warning. Chairman Peter Long has taken an executive role until a successor is appointed, while Paul Creffield, previously managing director of commercial development, has been appointed group operations director with immediate effect.

Last week, Countrywide warned that income and EBITDA for the calendar year was likely to drop to around £672m and to £26m.

Berenberg lowered its forecast numbers after the profit warning while reiterating its target price of 95p along with the upgrade until Countrywide's trading update on 8 March.

The annualised value of total property Countrywide will list at current rates, from which it derives its commission income, fell 30% to £28bn over the fourth-quarter, and while Berenberg highlighted that the decline was likely partly due to seasonality, the group's core Hamptons brand was down 15% on the same period a year earlier, and that the overall group had experienced a further drop after the end of the calendar year when the new selling season began.

"We reduce our 2018 EPS by 8% and 2019 by 6%. We now value Countrywide on 7.5x our 2018 P/E, implying our 95p price target. The 5% downside implies our Hold recommendation," the analysts noted.

As of 1620 GMT, shares had inched forward 1.20% to 101.20p.