After seven years in private hands, estate-agency group Countrywide (CWD)will refloat its shares at 350p, giving a market capitalisation of just under £750m. The price came in at the top end of previous guidance, reflecting strong appetite for residential-property stocks as investors start – perhaps prematurely – to discount a recovery in the housing market.
Countrywide’s 2012 results were reasonably strong on an operating basis, but marred by a raft of exceptional costs. Revenues were up 6 per cent, thanks largely to strong growth in lettings and conveyancing. That in turn buoyed ‘underlying’ cash profits by 12 per cent to £63m.
But on a statutory basis the group posted a pre-tax loss of £10.8m, reflecting £37.1m of exceptional costs. Like its close sector peer LSL Property Services (LSL), Countrywide was forced by a worsening rate of professional indemnity claims to book a hefty provision against future liabilities – in this case £25.2m. Lenders are trying to recoup some of the money they have lost on boom-era mortgages by blaming over-optimistic surveys. The company also booked £11.5m of straight restructuring costs as exceptional charges.
If we take the underlying cash profit figure of £63m, the mooted flotation price values the company on a multiple of 12 times. That’s conspicuously more than the equivalent figures for LSL, on about 10 times, or Savills (SVS) – a much more international player – on just over 9 times. Countrywide, which is majority-owned by Oaktree Capital, a Los Angeles private equity firm, is rumoured to have received a lot of interest from US hedge funds. They may be inferring a recovery in the mainstream UK housing market from the turnaround of its equivalent across the Atlantic.
True, Countrywide will be among the first to benefit if UK housing transaction numbers recover. Selling houses accounts for some 40 per cent of its sales but only a fifth of its cash profits. Core estate agency income was down 1 per cent last year as fees sagged in a flat and fiercely competitive market. But it’s a big if. “The recovery will take longer than people think,” reckons one local broker.
