November 24, 2016 / 9:32 AM / 3 years ago

Countrywide warns Brexit will hit 2016 earnings

(Reuters) - Countrywide (CWD.L), Britain’s biggest lettings and estate agency firm, warned on Thursday earnings this year would be hit by a slowdown in the property market since the vote to leave the European Union, sending its shares to a record low.

People were holding off buying second homes amid concerns of economic uncertainty over the next 12 to 18 months due to the lack of clarity about what terms Britain would negotiate in its divorce from the EU, Countrywide’s finance chief told Reuters.

“The lack of visibility on what leaving the EU means people are delaying making decisions and I don’t really think that’s going to change in the short term,” CFO Jim Clarke said.

The company said it expected transaction levels this year to be 6 percent lower than in 2015, with its retail and London businesses suffering in particular, and transactions could well be lower again in 2017.

Countrywide shares slumped as much as 14 percent to a record low of 165.9 pence and were down 12 percent at 1115 GMT.

While strong demand from first-time buyers has meant most builders have seen housing sales in much of Britain recover from an initial dip after the June 23 vote, estate agents continue to smart from the slowdown in the secondary housing market that Clarke said accounts for close to 90 percent of transactions.

To add to their worries, Britain said on Wednesday it would ban one-off tenant fees to try to bring down the cost of renting and cool a market already hit by a property tax increase in April on houses bought by buy-to-let landlords.


Clarke said it was too early to assess the impact of the changes, but the company did say 2016 earnings before interest, tax, depreciation and amortisation (EBITDA) would be around the lower end of the market consensus.

Analysts on an average had expected EBITDA of 85 million to 100 million pounds, according to Thomson Reuters I/B/E/S. The forecast was lowered after a previous warning in July.

“There’s no light at the end of the tunnel here,” Peel Hunt analyst Gavin Jago wrote. Jago, who has a “hold” rating on Countrywide, cut his target price to 170 pence from 250 pence.

He estimated that Countrywide gets about 5 million to 10 million pounds of pretax profit, or some 18 percent of expected 2016 group pretax profit, from the upfront lettings fee.

Shares in Belvoir Lettings (BLVB.L) shares fell after it said the impact of the changes was expected to be less than 8 percent of gross profit. Shares in online agent Purplebricks (PURP.L) rose after it said there would no meaningful impact and it could adapt its model swiftly at minimal cost.

Countrywide is also having to invest in digital expansion, close branches and slash headcount to fight back against the growing threat from online agencies that are luring customers by charging lower fees.

It joined London-focused rival Foxtons (FOXT.L) in noting a continued decline in transactions during the quarter to the end of September, which pushed its revenue down 4.4 percent to 188.5 million pounds. Foxtons had issued its own warning earlier.

Countrywide said the slowdown in transactions had most notably hit its retail and London businesses with forward order books down 16 percent and 26 percent respectively year-on-year at the end of September.

Reporting by Esha Vaish in Bengaluru; editing by David Clarke

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