UBS launches coverage of UK estate agents
Updated : 09:32
UBS initiated coverage of the UK estate agent sector on Wednesday, with Foxtons and Savills at ‘buy’, Countrywide at ‘neutral’ and Purplebricks at ‘sell’.
The Swiss bank, which expects UK wide housing transactions to fall 6% this year and 5% the next – with a 10 drop in London in 2017 – said online-only agents are structurally altering the landscape of the sector, and are gaining significant market share as consumer awareness and willingness to consider using them grows.
UBS said conventional agents most able to differentiate themselves such as Foxtons and Savills justify a premium price and will be most successful in withstanding the changes.
As far as Foxtons is concerned, the bank said the UK referendum result has added significant uncertainty, in particular for the London housing market, and it has factored in a declining market in the second half of this year and 2017 within its forecasts.
However, in the medium term, it sees organic growth potential at the company, driven by a rollout of five to seven new branches per year.
On the other hand, it reckoned Countrywide was most at risk from this shift, with pressure on commissions over the last six years indicative of its limited ability to respond to online competition.
Still, it said the recent share price weakness in Countrywide on the back of the Brexit vote means the risks are capture in the valuation, hence the ‘neutral’ rating.
On Purplebricks, UBS said the valuation looks stretched given executive risks on growth.
“With the business not yet in profit and on EV/sales of 18x we see valuation risks. The model has been proven fit for growth, but the self-employed nature of franchisees, as well as the large revenue cut that Purplebricks takes from its franchisees, for us creates question marks around scalability. There are also significant costs associated with growing a web-based company.”
At 0930 BST, Foxtons shares were up 3.3% to 131.50p, Savills was up 1% to 655p, Countrywide was up 1% to 263p and Purplebricks was down 1.1% to 127.35p.