Countrywide shares plumbed fresh record lows this morning after the UK estate agent issued its second profits warning in barely six weeks and investors had to wave goodbye to the dividend. Not that the City had been pencilling in much in the way of income. Not after an already tough 2017, made tougher by a huge £215m impairment charge related to historic expansion (goodwill, brands etc). Even stripping out the impairment, profits fell amid poor Sales & Letting performance (income -9%, profits -23%). That said while Financial Services profitability fell, Mortgage arrangements were up and B2B profits actually improved.

The company is paying dearly for the highly acquisitive growth that helped its shares climb 80% to peak at 700p just 12-months after its March 2013 IPO. The problem is that the seemingly unbreakable UK housing market finds itself under increasing pressure with buyers deterred by economic uncertainty related to Brexit and the prospect of higher interest rates, letting investors hampered by both tax changes and rate hikes, clear slowing in house price growth and of course fierce competition from cheaper on-line selling alternatives.

In a way, management is paying the price for what can be considered welcome management honesty, saying it like it is. Opening your FY results update with “2017: A DISAPPOINTING YEAR” is a gutsy intro (albeit no secret), especially if you’re trying to get bulls back onside with shares trading 75p; -26% YTD (now -37%) and -87% since an extended downtrend began at 600p in June 2015. So too is a financial summary, highlighting nothing but retreat from top to bottom line, and a gloomy outlook statement highlighting; 1) entering 2018 with a pipeline significantly below that of 2017; 2) expecting £10m lower adj. EBITDA in H1; 3) unlikely to recover said shortfall in H2; and, 4) having to wait until interim results for updated FY guidance and more details on the recovery plan.

The company says it has set out the foundations for recovery to regain market share, and the shares off admittedly off their worst levels (-15% vs -23%) as bargain hunters step in, anticipating a short-term bounce. However, existing investors are clearly wanting to move out while interested buyers aren’t prepared to take the plunge and exchange contracts at the offer price. Unless the teleconference at 9am can offer something more exciting that the 7am statement, the prospect of having to wait until 27 July for a strategy update may prove too long for those searching for a home for their capital.

Mike van Dulken, Head of Research, 8 Mar