Countrywide slumps on Credit Suisse downgrade

Countrywide took a hit on Monday after Credit Suisse downgraded the stock to 'underperform' from 'neutral' and slashed the price target to 111p from 288p as it took a look at UK estate agents.

"Market conditions are unsupportive and with a stretched balance sheet and the lowest cash conversion ratio of the sector, we believe Countrywide's ability to invest in its self-help initiatives and deliver earnings growth will be severely constrained."

The bank cuts it FY17/18 adjusted earnings before interest, taxes, depreciation and amortisation estimates by an average 36%, which is part of the reason for the target price cut.

CS said that while there is merit in the company's rollout and cost transformation strategy, Countrywide is attempting this big turnaround at a time when its financial firepower is diminished.

"With market conditions remaining challenging and the group having suffered a high degree of management attrition over the past 18 months, the turnaround is likely to be slow and we believe it will be some time before any benefits of the program are realised."

CS said it sees heightened risk in Countrywide's retail and London divisions, where, along with a weaker outlook on market conditions, it expects further adjusted EBITDA contraction.

The bank rates Savills at 'outperform' with a 1,049p price target, arguing that it's a solid business and screens as the strongest operator in its coverage universe, benefitting from the elevated levels of investment in global real estate.

It has Foxtons at 'neutral' with a 74p price target, saying the company is structurally sound but cyclical headwinds remain. "The London market will remain challenging but we believe Foxtons' strong cash conversion and net cash position provide greater downside support should market conditions deteriorate further."

At 1530 BST, Countrywide shares were down 3.9% to 117p.