Countrywide plans equity raising to cut debt, downgrades H1 earnings guidance again

Shares in estate agent Countrywide tumbled on Monday after it cut its adjusted earnings guidance for the first half again and announced an equity raising to reduce debt.

The group said the market in the first half has remained subdued and it has experienced longer transaction cycles. It now expects adjusted earnings before interest, taxes, depreciation and amortisation to be around £20m lower than the first half of last year and said the shortfall is not expected to be recovered in the second half.

Countrywide had already warned in March that adjusted EBITDA would drop by around £10m in the first half.

The company, which had already announced that it entered the year with a sales pipeline significantly below 2017, said it remains focused on building back the sales pipeline and that it expects to "substantially" close the pipeline gap by the end of the year.

In addition, Countrywide said it plans to cut debt levels by at least 50% through additional equity finance, with major shareholder private equity firm Oaktree and its lender group both supportive. However, it said the process is still at an early stage and it will provide further details at the interim results next month.

Countrywide also provided an update on its back to basics recovery plans, saying that it has made "substantial" progress in re-establishing industry expertise and the right level of staffing and capability in its sales and lettings businesses. The register of properties available for sale is now broadly back to 2017 levels, having increased by 9% since 31 December 2017.

Meanwhile, cross-referral income within the group has risen by 8%, with every £1 of income earned by estate agency in the first five months to May 2018 matched by a further 41p of income generated from estate agency referrals, versus 38p in every £1 in 2017. Countrywide also said it has reduced head office functions by a third, while its B2B and financial services businesses performed in line with the board's expectations.

Peel Hunt, which has put its forecasts and recommendation under review, said its current FY18 EBITDA forecast of £55m is likely to move to around £40m.

Artjom Hatsaturjants, research analyst at Accendo Markets, said: "The real estate agent’s never-ending troubles come after multiple profits warnings from housebuilders (Crest Nicholson, Berkeley Group) supporting the notion that the UK housing market is in deep trouble. After many years of strong expansion, have the chickens finally come home to roost for Countrywide, with its promises to halve M&A swollen debt and progress in reducing HQ headcount by a third not fooling investors?

"Countrywide had already warned in March of £10m lower adjusted H1 EBITDA. With the figure now upped to £20m, are we going to hear a new revised £30m number in September? £40m by year’s end? How low can Countrywide go?"

At 0820 BST, the shares were down 23% to 60.20p.