Countryside chair to step-down after activist attack

Countryside Properties (CSP) is taking heed of number three shareholder Browning West, which launched an attack on the board’s competency and called for a restructure of the group. Non-executive chairman David Howell has announced his intention to stand-down from the board next year and management has appointed Rothchild & Co to explore a separation of the housebuilding business from its partnership division. 

The shareholder, which owns a 9.4 per cent stake in the group, said it had identified three core deficiencies in the group including “value-destroying capital allocation policies” and argued that the partnership division was undervalued. However, in its response, Countryside management said it would not be fulfilling the activist’s request for Browning West founder and chief investment officer Usman Nabi to be appointed to the board, which it said was neither “necessary or in the best interests of the company or its shareholders”.

Activist demands aside, management is hoping the partnership division will drive future returns. In fresh 2023 targets, it plans to deliver 8,000 completions from this segment - 84 per cent of the group total - and generate a return on capital employed of more than 40 per cent, compared with at least 25 per cent from the housebuilding division. 

As the private sales market faces great uncertainty, focusing capital allocation on the partnership division - which suffered a lesser decline in completions last year - has merit, particularly the decision to target affordable and private-rented sector completions. That said, the group is also 70 per cent forward sold for 2021 and expects adjusted operating profits for the current financial year to be at the upper-end of consensus forecasts. Yet a forward price/book value multiple of two, a premium to the sector, seems unjustified. Hold.

Last IC view: Hold, 304p, 14 May 2020