Countrywide tumbles to new low on Brexit profit warning

The FTSE 250 company said due to reduced transactions in the second half of the year earnings before interest, tax, depreciation and amortisation (EBITDA) is anticipated be at the lower end of market expectations.

A combination of changes in stamp duty and the EU referendum in June meant transaction levels were “significantly” below 2015.

With the Bank of England reporting mortgage approvals in the third quarter of 2016 were 12% below last year, the company said it now expects transaction volumes for the year to be 6% down from 2015, and that it is likely that the level of market transactions in 2017 will be even lower than 2016.

In response the company said it has focused on efficiency and productivity and has shifted to a multi-channel model.

For the third quarter ended 30 September, revenue fell 4.3% to £188.5m, compared to the same period last year, slowing revenue growth for the year to date to 4.2% to £558.7m from the 9% growth in the first half of the year.

In the quarter, retail house exchanges fell 1% to 13,409, while house exchanges in London plummeted 29% to 2,484.

While retail residential properties under management increased 14% nationally, and was up 1% in London.

The number of mortgages arranged climbed 19% to 24,011 and the company expects to finish the year having helped 25% of existing customers find new deals and committed to its our long-term target of 33%.

At the end of September, activity in the retail and London businesses were down 16% and 26% respectively.

A change in stamp duty in April, which added 3% to stamp duty bills for those buying a second property, meant there was a rush for buy-to let properties before April, and an increased supply of rental properties. The company said it expects a slowdown in the sales market to support the growth in rental market in the medium term.

Chief executive Alison Platt said: "We have made good progress this year despite tough market conditions since the EU referendum, particularly pleasing is our growth in market share in both sales and lettings based on available market data up to July. In addition, these results in our lettings, mortgage and professional service businesses underline the importance of the breadth of the group and the focus we have placed on keeping the customers we win and continuing to serve them.”

In the Autumn Statement on Wednesday, Chancellor Philip Hammond announced there to be a ban on upfront fees imposed by letting agents in England, which sent shares in Countrywide and its peers sharply lower.

Platt said the company looks forward to working with the government through the consultation process. In August the company launched the Fixflo tenant app for its lettings customers.

Shares in Countrywide, which in June plunged below their 2013 float price of 350p, were down a further 13.72% to 167.90p by 0820 GMT, to a new low.

Analyst commentary

Neil Wilson, markets analyst at ETX Capital, said Countrywide's shares plunged 12% on the open after sliding 5% on Wednesday and at 167p is trading around 70% down from the 600p highs hit last year.

“The company says it’s making good progress but today’s trading statement confirms that estate agents are facing a troubled future.Transactions are running well below last year, with mortgage approvals in the third quarter 12% down from the same three months in 2015. Transaction volumes are set to be 6% lower this year and no better in 2017. Earnings this year will be at the low end of expectations. London is underperforming more than other areas.

“Yesterday’s Autumn Statement bombshell banning letting agents from charging upfront fees to tenants couldn’t have come at a worse time for the sector. The trading statement presumably doesn’t take stock of this change so we could see a greater adverse effect as a result. (Belvoir Lettings said today that fees account for around 10% of revenues for its franchisees.)”

Broker Jefferies said that Countrywide’s trading was in line with its expectations as its current £85m estimate of EBITDA for 2016 is 15% below Bloomberg's consensus of £100m.

“Our estimate is the lowest in the range and the group is guiding around the 'lower end of market expectations'. We are not changing our estimates today, but we suspect others will.”

It said that while the company has a deliberate and diverse business, it is “exposed in many forms to the underlying UK housing market, weakness in house prices, transactions or the private rented sector may lead to a reduction in our estimates”.

Shares in Countrywide were down 13.72% to 167.90p at 0820 GMT.