Estate agents tend not to get a lot of sympathy so prepare to shed crocodile tears for Countrywide PLC (LON:CWD), which has issued a profit warning.
The shares were off 16% at 114.06p after the property selling group said underlying earnings (EBITDA) for 2017 is expected to be around £65mln, down some 22% on 2016’s £83.5mln.
READ: UBS cites “structural headwinds” as it downgrades Countrywide to sell
On the sales and lettings side, EBITDA is expected to be around £26mln, down 45% year-on-year. The shortfall was attributed principally to changes in the sales and lettings structure made over the last 12-24 months. The group said it has begun to take a range of actions over the last quarter in the hope of restoring the business to profitable growth.
Total income from sales and lettings was down 14% at £360mln, following a disappointing fourth-quarter performance.
Lettings income globally was down 4% at around £169mln, driven by an 8% decline in the UK, although London remains a law unto itself, with lettings revenue flat year-on-year.
Some bright spots among the gloom
Countrywide’s business-to-business unit was a bright spot and is expected to deliver strong EBITDA growth of 14% to around £36mln from £31.5mln last year.
Financial Services was a mixed bag, with double-digit percentage income growth across the combined Buy-to-Let business, Mortgage Bureau and Mortgage Intelligence channels offset by lower transactional volumes from estate agency.
The Financial Services unit is expected to see a decline in EBITDA to around £20mln from £22.6mln the year before.
Gearing remains a concern, with net debt at the end of the year likely to be around £193mln, down from £248mln a year earlier.
Broker reaction was predictably negative
Broker Peel Hunt said the outlook remains challenging with little or no uplift in transactions expected this year.
“The group has taken further actions to restore the sales and lettings business to profitable growth; however, as 2017 has shown, it has been difficult to predict the profit impact of a reduction in the branch network footprint/costs,” the broker said.
“Headwinds remain for the lettings business, albeit, the timing of the implementation of the Government’s lettings fee ban has been pushed back to 2019. When it comes into force, we are forecasting a c£15m profit impact from the fee ban, largely offsetting ongoing cost-cutting measures,” Peel Hunt added.
The broker said it would not be making any changes to its forecasts following the trading update.
“The relatively high gearing also remains a concern for a business operating in a highly cyclical industry,” it observed, as it stuck with its ‘reduce’ recommendation.
Sector peers in mixed reaction to the update
Shares in sector peer Foxtons Group PLC (LON:FOXT) fell 4.3% in sympathy but another estate agent chain, M Winkworth PLC (LON:WINK) was holding steady after seeing a 4p rise to 110p yesterday after its trading update.
Meanwhile, elsewhere in the sector, JP Morgan has initiated coverage on Purplebricks Group PLC (LON:PURP) with an ‘overweight’ recommendation but has downgraded Rightmove PLC (LON:RMV) from ‘neutral’ to ‘underweight’.
Purplebricks’ stock was up 5% at 20.20p in mid-morning trading while Rightmove was down 2%.