Countrywide losses widen after Q4 housing market slowdown

Countrywide shares were under the cosh on Thursday after the estate agent said annual losses widened as the housing market slowed in the fourth quarter on the back of Brexit uncertainty and warned that first-half earnings would take a hit.

In the year to the end of December 2018, statutory losses widened to £218.2m from £207.3m in 2017, with adjusted earnings before interest, tax, depreciation and amortisation down 50% to £32.7m and income 7% lower at £627.1m.

Executive chairman Peter Long said: "We have been encouraged by the progress made in 2018 in resetting the business as part of our return to growth strategy. The principles within 'back to basics' in sales and lettings resulted in growth in the register and the sales pipeline in the UK, coupled with an increase in market share of listings.

"We encountered market weakness in Q4 due to the further uncertainties surrounding Brexit which is affecting both our sector and consumer confidence as a whole. These headwinds have continued into 2019. As a result, we are experiencing further slow-down in residential and commercial property transactions particularly in London and the South, which will affect our H1 EBITDA by some £3-£5m."

The group said that while full-year EBITDA is expected to be broadly in line with 2018, it is contingent on recovering the first-half shortfall in its traditionally stronger second half.

"As a group we are in a stronger position than we have been for some considerable time with sound business fundamentals and, despite the difficult market conditions we are facing, we remain confident in delivering our turnaround," said Long.

At 1025 GMT, the shares were down 9.1% to 9.55p.

Russ Mould, investment director at AJ Bell, said the current environment, with Brexit uncertainty weighing on transactions, would test a company in the rudest health let alone one which is beset by significant structural and cyclical problems.

"Even hitting today’s reduced guidance requires a significant rebound in the second half of the year - often a situation which results in another profit warning if the shortfall can’t be made up.

"The company outlined a three-year turnaround plan last year, so there is still time left, but patience from the market looks to be rather thin on the ground."

Meanwhile, Neil Wilson, chief market analyst at Markets.com, said: "The fact is properties are not coming on the market as quickly, prices are depressed and estate agents face massive structural forces in the form of online – principally the likes of Purple Bricks which are grabbing market share.

"But the good news should be that if and when the clouds of uncertainty over the economy disperse, market conditions should look more favourable again. Market chatter seems likely to focus again on a possible bid, or merger to shore things up, particularly since net debt was brought down."

Peel Hunt cut its recommendation on the shares to 'sell' from 'hold' following the results and reduced the target price to 5p from 12p, as it downgraded its FY19 EBITDA forecast to £30m from £43m.

"While the 2018 results were in line with previous guidance, the trading backdrop remains challenging. Transaction volumes in both residential and commercial markets are under pressure and guidance for FY19 has been lowered significantly. Generating flat EBITDA in FY19 is reliant on a recovery in H2, which given the current economic uncertainty could be a bridge too far. Net debt is also unlikely to reduce in the current year and covenants begin to tighten from September."