Numis cuts Countrywide forecasts as mortgage approvals come in weak

Weak mortgage approvals in the UK have prompted Numis Securities to lower its forecasts for estate agency group Countrywide, though the broker still rated the stock as a ‘buy’.

“Whilst we reduce estimates in this note, highlighting the high degree of uncertainty in the housing market at present, we contend that Countrywide is too cheap,” Numis said.

“We feel that at the current share price the market is giving no credit to the improving cash generation of the business and also the longer-term recovery potential of the housing market.”

Mortgage approvals in the UK fell below 60,000 in October for the first time since June 2013 - down 12.9% year-on-year on a seasonally adjusted basis.

Numis expects upcoming data to show that approvals remained “muted” for the rest of the year and has trimmed its predictions for Countrywide’s UK transaction growth from 15% to 13.8% for 2014 and from 8% to flat for 2015.

As a result, its operating profit forecast for 2014 has been cut by 8% to £118.3m and its 2015 estimate lowered by 18.3% to £130.2m.

However, the new forecasts still represent decent year-on-year growth due to the continued improvement in Countrywide's lettings division.

Following the downgrades, Numis said that Countrywide’s shares trade at just 10.2 times estimated earnings with a dividend yield of 5.9%.

“We estimate 22% upside to fair value,” the broker said, keeping a 522p target price for the stock which was down 0.6% at 421.56p by 10:13.