Countrywide plc (lon:cwd)
Countrywide – Recovering Share Price Or Recovering Business


ItemCurrent PeriodPrevious Period
Period12 Months12 Months
Adjusted Earnings
Adjusted EBITDA£24m£21m
Statutory Profit(£42m)(£231m)
Adjusted Profit
Total Debt
Net Debt£83m£71m
Title: Countrywide – Recovering Share Price Or Recovering Business
Company: CWD - Countrywide plc
Share Price Then: 115p
Author: Ian Smith
Date: Mon 13 Jul 2020
Comments: I stopped looking t Countrywide a while ago as I was pretty sure that it was in terminal decline but they are still around.

In Jan 2020 a 50 for 1 swap bringing the price up from around 7p to 350p peaking at nearly 400p, so is the business recovering or did the share swap help to make the share price respectable and reality has taken hold again at 115p?

Pre swap this would be around 2.3p or pretty close to the all time low and with a current market cap of around £36m it is almost petty cash if someone wanted the business.

In June there was a trading update for Jan – May revenue was down by 25% to around £150m from £200m in 2019 due to branch closures.

The tenant fee ban has seen around £8m lost in fees.

The 2019 accounts showed another £58m of exceptional costs, and a net loss of £48m possibly suggesting that the core business was close to being back in profit pre debt repayment.

Worrying about reductions in income seems pointless as we all know that COVID has significantly affected property sales but we can still look at debt.

Net bank debt is £55m and with £64m available as part of a £125m RCF along with two £10m facilities which sounds healthy. But there is benefitting from the deferral of VAT, PAYE and NI. so it seems that they are “borrowing” these amounts and it is not clear how much they are but when they become due there will be limited flexibility in how long they can be put off.

Added to this we have The 2019 accounts showed another £58m of exceptional costs, and a net loss of £48m possibly suggesting that the core business was close to being back in profit pre debt repayment.

So overall my option hasn’t changed much, the £130 million raised in August 2018 is all gone, debt is high and possibly going to grow and there appears to a significant risk that money due but to HMRC but deferred is being used as working capital.

In the early part of the year there a timescale to sell Lambert Smith Hampton for £38m but this sale fell though and LSH are still part of the group. If another buyer can be found then at first glance this could be a big chunk of the debt paid off, but what seems more likely now is that the proceeds will cover an increase in debt over the next few months.

There was also some talk of a takeover by LSL which came to nothing.

Whether these two events indicate something not clear to outsiders or just normal business is a question that troubles me when considering the company’s financial position.

To me another share issue seems to be the only way out of the debt trap which would probably need to be £100m so a five-ten fold dilution seems about right.

Of course PurpleBricks have been pulling back from overseas markets where the no branch and up front fees model didn’t work so do they want a ready made branch network?
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Share Commentaries, their purpose.

Previous Commentaries On Countrywide plc
Date Share Price Author Commentary
Mon 06 Jan 2020338pIan Smith

Countrywide – Broke A Golden Rule Of Mine

I have a rule that says whenever a company does a share consolidation for the sole reason that the share price has sunk so low that it is embarrassing pretty much give up hope in the current management.

Countrywide have just done such a thing, a 50 for 1 swap bringing the price up from around 7p to 350p, yes the share price now looks respectable except when you consider that adjusted it is down from around 13,500p a couple of years ago.

What I usually take from this type of activity is that the management are trying to hide the fact that the business really fouled up and left its shareholders nursing massive losses.

The downside is that everyone knows this anyway and instead of people buying in, the new higher price can encourage sales before the new higher price drops taking even more value away.

Given Countrywide’s losses, massive share issue and the growth of debt I would have thought that recovering the business and recovering the markets confidence was more important than a low share price that truly reflected a failing business.

At the same time as the share consolidation they announced the sale of Lambert Smith Hampton for £38m which will go towards reducing debt from around £90m to £55m. The stated reason is that the commercial property division was requiring too much management time, as a cynic I wonder if selling a profitable division was simply a way of hiding the fact that debt was growing again.

Net debt had crept up to £90.0 million from £70.7 million in December 2018. This is after a massive £140 million fund raising in August 2018 had brought debt down from over £200m.

For all the talk of a recovery and improved expertise within the branches things are not getting better, so I wonder if the consolidation is to allow another large share issue which may have been laughed at when the shares were trading in the 3p-7p zone.
Sat 01 Jun 20194.2pIan Smith

Countrywide - Market CapitalisationDown To About £67 Million

Currently the share price is down at around 4.2p valuing the company at around £68 million and the share price has been steadily and consistently falling since the share issue in August 2018

So the question is why, surely those who provided the funds knew what they were letting themselves in for?

Countrywide reports over three sectors.

SectorIncomeAdjusted EBIDTA
Sales and lettings £329 £1.2
Financial Services £83.9 £16.5
B2B £213 £27.9

The bad news starts with an expectation a loss of around £9million from the banning of tenant fees. Exactly how this will play out is unclear but they do seem to have been a bit of a cash cow. A tenant can be easily bullied into paying these fees as they have little choice, landlords have more choices so will be more concerned about value for money.

Countrywide has around £106 million of operating leases, these are due to appear on the balance sheet soon as the Group will adopt IFRS 16 for the year ending 31 December 2019, this is expected to have a significant impact on the reported numbers but will it make a difference to real world operations?

Looking at the last annual report we see yet another company in "Transition" and so far I can’t see a successful transition as the latest trading updates talked about a reduction of income for the business.
Which is worrying when the 2018 annual report says that 2018 was a bad year and 2017 was worse than 2016 which was worse than 2015.

There are also reports of branch closures, but this is not necessarily anything other than we don’t need 850 branches something they have been encouraged to do for a while and now that they are doing it, it is a bad thing!

I am also not sure that there has been time for the improvements in the company’s structures and processes, if they are going to work, to have yielded much in the way of results.

One of the non executive directors has received some criticism for attending 10 out of the 14 board meetings he was eligible for. However some of these were unscheduled during the refinancing process, although a non exec he is also a senior member of Oaktree Capital who own about 18% of Countrywide, so I am not sure that this is a real issue.

I always have a problem with the exceptional costs and in 2017 and 2018 the company reported exceptional items in the £220-£240 million range although a big proportion was Impairment of non-current assets, writing off hundreds of millions spent on expansion? Is Countrywide at the end of this process and even if it is not as long as they non cash exceptionals then they are just part of the bad news from the past.

£70 million of debt is not good, but it is not crippling the business although I would worry if it starts to grow again.

I can’t help seeing the B2B business and wonder if the retail side is over emphasised and the closure of branches just getting rid over bad decisions from the past.

I keep seeing a share price that could easily double or triple and having a feeling that those who know the industry better than me are right.

It may be the huge headline losses are scaring investors away and the company is much healthier than it is perceived to be or it may be that it is just too big and being big offers nothing over being small, local and motivated except a layer of management to pay for and possibly a board that is over comfortable.

Or are we about to see some board changes brought about by Oakwood and other large share holders.
Thu 18 Apr 20197.2pIan Smith

Countrywide – So Much Money Spent And So Little Value!

Countrywide Estate Agents recently, August 2018, raised around £130 million in a share issue yet today its market capitalization is at £117 million. Post the share issue the prices settled at around 12p for a while and today was at 7.21p

The February trading update had 2018 everything a bit down 5%-10% across various business sectors Sales and Lettings Income for the full year was £329 million, B2B Income in was £213 million and Financial Services income was £84 million.

Down on last year is never good but these numbers are not a total meltdown.

The preliminary results in March showed a loss of £218 million but this included £245 million of principally non-cash exceptional charges for goodwill, intangible and other asset impairments.

I have looked at internet competitors and although listing on internet sites is probably mandatory from now on comments seem to be that once a decision to buy or sell has been made the quality of the people involved matters greatly.

This shouldn’t be surprising as most people buy/sell very few houses in their lifetime and a business model based on a hard sell to get a listing fee regardless of whether or not the property sells is probably not going to offer this.

So although I think that the share price is low the company has stated a medium term no dividend policy which may be having an impact on the share price and I can’t see a short term motivator for a share price rise.