Countrywide slumps as lack of housing stock weighs on sales volumes

Countrywide warned full year profits will be lower than last year’s as the estate agency group has not seen the expected recovery in numbers of housing transactions, exacerbated by a lack of houses for sale.

The FTSE 250 group now expects full year estate agency volumes to decline 5%, which is greater than the previous expectation of a 2% decline.

Earnings before interest tax and depreciation (EBITDA) for the nine months to 30 September was 11% below last year and, while management predicts a modest year-on-year recovery in the fourth quarter, overall it said full year EBITDA will be less than the £121.1m from 2014.

Housing exchanges in the third quarter to end-September were down 8% on the same period last year, mostly from outside London.

This mimics the latest market data from the Land Registry, which showed volumes to the end of July were running 8% below 2014 as the anticipated post-election recovery in residential transactions failed to materialise in any significant way.

Countrywide noted that a “key constraining factor” on the current market wass the availability of housing stock, with the number of properties coming to the market running “significantly” below the same period last year, with the government’s changes to stamp duty rates last winter not affecting volumes but constraining the top end of the market.

Chief executive Alison Platt acknowledged the market was providing a difficult backdrop but that the company was looking to lessen its reliance on the sales market.

"While we are undoubtedly experiencing a period of short-term pressure on market volumes, we continue to invest in our underlying business to ensure we have the foundation for future growth.

“The benefits of this strategy are evident in the current performance from both our Surveying and Financial Services businesses where previous investments in resource capacity have produced results which are currently well ahead of their respective markets,” she said, backed up by a 10% increase in mortgage arrangements.

Platt also reported “good progress” from commercial property business, Lambert Smith Hampton, and pointed to investment in the lettings business in anticipation of significant growth in future years. Residential lettings enjoyed a 5% increase in numbers during the quarter.

Analysts at Numis reduced 2015 and 2016 EBITDA forecasts by 12% and 17% respectively and cut its target price for the shares.

“In our view, the continuing lack of second hand stock is putting increasing onus on acquisitions in order for Countrywide to achieve its 2020 target of £250m EBITDA. This clearly increases the risk profile and in our view could lead to some PE compression from here.”