Even though Foxtons’ operating expenses exceeded revenues, it still exited the June half-year with £11.8m in net cash, which should probably see it through to the final quarter of 2019 before it would have to consider any funding options, whereas Countrywide’s period-end net debt of £212m (4.7 times adjusted cash profits) is nearly six times greater than its current market capitalisation.
The upshot is that the group is moving ahead with a three-year turnaround plan, including a share sale that will raise about £129m net of fees, with the aim of reducing net debt by around 60 per cent. Shareholders may be aghast at the 10p placing and open offer price but are unlikely to baulk given the issue document states that “under the terms of the Amended Credit Facility, the group’s lenders could (following a short negotiation period) demand repayment of all borrowings, which the group cannot afford” – game over.
Returns weren’t quite so dire beyond the group’s debt profile, with net income down 9 per cent to £304m, and adjusted cash profits of £10.7m – slightly better than recent forecasts but a little anaemic compared with the £27.8m booked for the same period a year earlier. Meanwhile, an impairment on non-currents assets amounting to £211m fed through to a loss of 87.4p a share, against a loss per share of 0.21p in the corresponding period in 2017.
Shareholders in Countrywide can take cold comfort from a marked increase in the number of mortgages arranged, but a 23 per cent contraction in the number of house sales exchanged is probably the most telling metric. The group notes “significant operational progress in the first half in the implementation of its back to basics strategy in Sales and Lettings”, presumably pitched in expectation that nobody would recall the rallying cry of Sir John Major’s premiership.
They’ve also been rearranging the deckchairs following the departure of Alison Platt in January. The erstwhile chief executive caused a good deal of consternation among shareholders and the industry at large, not just because Countrywide issued its second profit warning in three months, but mainly because she had never listed or sold a property, and never been a letting agent. Real estate practitioners might not be universally admired, but you assume that their incentives align with yours, and – more to the point – they understand what they’re doing.
Why someone with insufficient experience of the estate agency business was appointed to the top job is anyone’s guess, but at least the board now has a more industry-focused look about it, following the appointment of Paul Creffield (ex-Rightmove) to the role of group managing director, while Paul Chapman (ex-Halifax) will have his hands full as chief operating officer.
Mr Creffield subsequently scotched rumours that the group was considering hiving off its two premium brands – Hamptons and John D Wood. Despite persistent speculation, the prospect looks a non-starter, but you’re left wondering if the problems besetting Foxtons and Countrywide are simply the result of excessive leverage, constrained mortgage financing and a cyclical downturn in the London housing market, or if they’re part of a wider malaise, symptoms of structural changes under way in the UK housing market.
Over the past decade, the real estate market has been substantially influenced by online developments, but it’s conceivable that a dominant digital platform provider could eventually emerge – unlike existing proxy sites such as Zoopla – which could exert the kind of influence through pricing mechanisms that Amazon is working towards in the retail space. Traditional agents have been struggling to maintain inventory as many potential sellers have been either unwilling, or perhaps unable, to sell at current price levels, particularly if they’re ‘flipping’ properties.
