Agents feeling the heat in a sluggish property market

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National estate agency group Countrywide saw its shares plunge yesterday after the group announced an emergency fund raising exercise at a big discount to its previous share price. Its stock has declined in value from over £1 per share in June to just under 20p today.

Countrywide, one of the UK’s largest estate agency chains, is in difficulties because of a stagnating house sales market, challenges from new online entrants to its space, and a debt burden of £212m. An attempt to raise £250m through the issue of a high-yield bond failed to materialise earlier this year. The group made a £206m loss for the six months to June this year.

The share price drop Thursday, it would seem, is a reaction to its move to raise £111m through a firm placing of more than 1bn shares at 10p each, and a proposed additional £28.6m open offer placing. The 10p price is a big discount to its close price of 50p the day before. After a drop of something like 80% since January, the new offer will result in considerable stock dilution for existing investors.

Owners of leading brands in the property sector such as Hamptons International, Bairstow Eves and Chappell & Matthews, Countrywide shares hit a low of 10p at one point on Thursday.

However, Countrywide chairman, Peter Long told The FT:

“This is a once-and-for-all step, underpinned by a credible recovery plan.

“A business like Countrywide with high operational and financial gearing is not a very good cocktail, we’ve been clear about that. But this is no longer a business under capital structure pressure.�

International investment fund manager Oaktree Capital, a private equity group that owns around 30% of Countrywide’s shares, had agreed to buy £24m of new stock. However, it will not be taking up this full allocation, so in the process its stake will be diluted to 19 per cent.

The slow property market will not help the company to implement its planned three-year recovery plan as it reduces its head office staff by a head count of 150, around one-third of its head office staff, while planning to build up branch staffing levels.

Other property related companies have also been feeling the heat with market leading property portal Rightmove seeing its share price tumble by around 20% in July. Analysts at international banks UBS and Berenberg have advised investors to take profits and have cut the website operator’s rating from ‘hold’ to ‘sell’, stating that there are just “too many risks�, with agents feeling the heat.

With OnTheMarket and Zoopla as strong competitors, Rightmove is operating in a market that relies too heavily on price increases whenagents’ own margins are under pressure.

An analyst report by Berenberg says that estate and letting agents are both feeling the heat:

“One only needs to look at the share prices of listed estate and letting agents to get a sense of the troubles that some players are currently going through.�

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