Countrywide slumps on Jefferies downgrade

The bank cut its calendar year 2016 earnings per share estimate by 24% and its estimate for 2017 by 31% on the back of weak housing transaction data from the Land Registry, weak mortgage approval data and its view that Countrywide will scale back its expansion for as long as stamp duty levels and Brexit uncertainties temper activity in the UK housing market.

The Land Registry published data for June last week that showed transactions in England were down 32% year-on-year and 54% in inner London. In the year to 30 June, housing transactions were down 5% in England and 16% in inner London.

Jefferies argued that the last two stamp duty changes have disrupted the UK housing market, slowing the upper end and causing to unusual behaviour in the buy-to-let market.

“What should have been a period of short-term pain, while price expectations adjust, is still slowly playing out. We also believe that the creation of a two-tier stamp duty market acts as a brake on transaction levels. When we add 'Brexit uncertainty' into the mix, potential homebuyers have more reason to play a waiting game with respect to house purchases, and falling transaction levels are a key driver of our estimate cuts today.”

“While the group has a deliberate and broad diversification of business units, it is exposed in many forms to the underlying UK housing market; weakness/strength in house prices, transactions or the private rented sector may lead to changes in our estimates.”

At 0933 BST, the shares were down 4.5% to 192.86p.