Countrywide value to drop a further £170m?

A highly respected City analyst has released what can only be described as a scathing overview of the UK’s largest estate agency business.

Whitman Howard, a Mayfair based investment bank and institutional equity broker, has this week published a nine page critique of the Countrywide business and which has, as it’s headline, a sell recommendation. Worse though, is that it forecasts a target share price of £2.73 which is 24 per cent lower than today’s price, itself down 40 per cent on a year ago.

To be clear, Countrywide PLC and its stable of forty or so estate agency brands were worth £1.3bn in May 2015. Roll forward to now and they are valued at £781m. But Whitman are proposing that they are really worth £598m. This is a considerable fall from grace (£170m lower).

Is this simply market led? Well no, not when you consider that Rightmove, Zoopla, PurpleBricks, Persimmon and Bellway Homes’ share prices are all significantly higher than a year ago.

The Whitman Howard briefing note, mischievously entitled ‘The Last Days of Disco’, is heavy on setting out that the reason for Countrywide’s demise in value is the very real and growing challenge from online and hybrid estate agency businesses such as eMoov, the UK’s number two in that space. In fact, the words ‘competition’ and ‘competitor’ are mentioned no less than twelve times in a narrative that is peppered with warnings of the threat from our model and which is cited as having ‘been strong in 2016 to date…’.

Alison Platt, Countrywide’s CEO, has not enjoyed a buoyant time since taking the helm in 2014 and has overseen the aforementioned share price meltdown together with a recent announcement to the City that profits were down 37 per cent in 2015, a colossal fall for a listed business to try to shrug off as simply ‘transitional’. Indeed, tellingly, Ms Platt is quoted in the Financial Times in February this year acknowledging that her challenge in running Countrywide is not helped by ‘pressure from online rivals’.

The current reorganisation of her business by relabeling it as a ‘retail’ company and hauling in some execs from Carphone Warehouse is unlikely to be the remedy to the nosedive that Platt finds herself in. Nor is the tokenism that we are seeing with peripheral investments in ancillary Prop Tech firms. Sticking plaster stuff, in truth and not just because I say so but because the financial markets are definitely saying so. As are Countrywide’s customers, home sellers that as the numbers show, are willing to pay the estate agent less per transaction whilst their high street based costs increase. Reducing margins for the hamstrung business are of course unsustainable in the long term and yet my belief is that Platt and her team truly believe that jettisoning great people such as Bob Scarff and Alex Bailes (MD and Head of Digital respectively) whilst pushing up fees and maintaining over 1000+ irrelevant branch offices, is a recipe for shareholder value. It’s not.

Howard’s Scott Fulton is certainly telling them their fortune this week, loud and clear yet you don’t have to be Mystic Meg to see how this plays out. I doubt that his warnings will be heeded however as incumbents rarely jump on the juggernaut of change and innovation, favouring instead putting off being run over by it for as long as possible. After all, the current executive team at Countrywide, as with other listed estate agency businesses, are more than aware that their tenure and salary packages are far shorter in term than their shareholders’ horizon that they are, ironically, entrusted to protect.