City brokers warn of high street closures as new report hammers Foxtons, LSL and Countrywide

City brokers Peel Hunt have issued a report which warns investors of a thoroughly bleak outlook for traditional estate agents, saying that 2017 will be “another year of structural change” for the industry.

The report, which looks into listed developers and agents, is damning about Foxtons, Countrywide and LSL, but is glowing about Purplebricks.

Peel Hunt also warns that an increasing number of high street agents will close this year as “capacity” comes out of the industry.

It says that the business model for traditional agents is unsustainable if there are further cuts in commission rates, and also forecasts that a ban on letting fees will be the death knell for some agents.

However, it picks out Purplebricks as “the dominant player in the hybrid estate agency industry and well placed to become the largest agent in the UK in the next few years”.

The firm’s inaugural report on house builders and estate agents broadly concludes that developers will do well, but that the outlook is “tough” for high street agents due to the lack of stock and high levels of Stamp Duty.

It goes on: “However, we expect hybrid agents such as Purplebricks to make further share gains as a growing number of consumers are attracted by a full estate agency service for a low fixed fee.”

The brokers point to last year, when shares in Countrywide and Foxtons fell 56% and 46% respectively, while Purplebricks “was the best performing stock in our coverage”, rising by 47%.

Peel Hunt said that “estate agent activity was and remains much more muted due in part to a serious lack of houses for sale”.

The brokers have issued a Buy recommendation for Purplebricks, Sell recommendations for Foxtons and LSL, a Reduce recommendation for Countrywide, and an Add recommendation for Savills.

It says of Foxtons: “We forecast no profit growth over the next two years and our 80p target price implies c. 20% downside.”

It is also gloomy on LSL, saying that the group’s profit per branch targets look “increasingly unachievable”. It cites a backdrop of slowing transactions, pressure from fixed price agents, and the proposed ban on letting fees.

Peel Hunt is relatively upbeat about Savills, giving it a target price of 750p, above its current price of 688p, as it likes Savill’s commercial property business.

On residential transactions, Peel Hunt forecasts sales volumes to be 5% lower this year than last, and house prices to grow at somewhere between 0% and 2%.

For last year, it estimates transactions at 1.2m.

Countrywide expects its 2016 transactions to be down 6%, while Peel Hunt forecasts a 24% drop in sales at Foxtons.

“Conversely,” Peel Hunt continues, “Purplebricks reported a 108% increase in instructions in the six months to October as it continues to take share from the traditional agents.

“We expect this trend to continue in 2017.”

Peel Hunt says estate agents’ commission fees will continue to come under pressure: “With limited price growth and weaker transaction volumes, competition will likely intensify and 2017 will see more of the same.”

The firm also forecasts that a ban on letting agent fees will see agents losing over 10% of net income. It does not believe costs will be passed on to landlords.

The Peel Hunt report claims: “The number of consumers using a physical estate agency branch is diminishing as technology plays an increasing role in property searches and transactions.

“The last few years have seen a rise of hybrid and online agents with no high street presence (hence low overheads) but a full service offering through a network of estate agents who use home as their offices. Over the last 18 months we estimate that the market share of hybrid/online agents has doubled to c4%, with Purplebricks the dominant player with over 60% of this market.

“We are confident that the growth is set to continue.

“Due to the relatively high fixed costs of running traditional agencies, we do not believe that these are sustainable if there are further reductions in commission rates.

“We expect capacity is set to come out of the industry. The proposed ban on letting fees could be the death knell for some agents and we expect there to be an increasing number of high street estate agents closing in 2017 (a trend that began at the back end of 2016).

“In our view, the businesses that have adopted new technology and accepted that consumer attitudes to estate agency are changing fast have the potential to thrive, even in a market of slower transactions.

“However, those that don’t accept that change is afoot are likely to fare much worse.”

In further analysis in a report which runs to almost 190 pages, Peel Hunt says of Countrywide that it is no longer an advantage to have so many branches, and that this year will be tough. Of Foxtons, it says that its growth is being “stymied” by its high commission rates.

Of LSL, it says that its targets of at least £80,000 per branch took a backward step in 2015, and it expects further reductions for last year and this.

Urging investors to buy shares in Purplebricks, Peel Hunt says its growth continues apace, and that it will become the largest agent in the UK within three to four years.

38 Comments

  1. 123430

    Although, it’s quite a bleak report, there are some unfortunate truths. The big corporates need to sort their houses out, whether we like PB or not, they will continue to grow and bleed supply.

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    1. Bless You

      What is most worrying is that the press are falling for online model propaganda.

      People arent happy with purplebricks. I ve been trading for 15 years and not had one real complaint. Purplebrickls are already in the 100’s but the media dont seem to care about this.

      Their last advert is blatently trying to trick people into thinking they are free…. people dont hear what we hear wen they watch the adverts.

      These are changing times. Something very wrong is happening in a world where the honest get trod on. Companies and people who lie seem to be winning at the moment.

      This is how trump won the election. This is ho wBrexit happened..This may be why purplebricks are getting away with constant blurring of the truth.

      £1000 to put your house on the market sale or no sale should be a criminal act…

      you wouldnt pay for windows on the hope they get fitted….

       

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      1. Bless You

        Purplebricks: 2 more on market today in our area…. our only hope is to kill Rightmove now….  onthemarket was our saviour but it looks theyve forgotton what they were created for.

         

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      2. AgentV

        Wholeheartedly agree, but the only way is too join as one voice to put forward the counter argument. Trying to get agents interested in that is not very easy. We have been trying for months now, and whilst there are a few, we need to build quicker.

        Otherwise the tumour of misinformation propaganda (including as you say tricking people into thinking it’s free) will have grown substantially.

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        1. Bless You

          Unfortunatly we are all lemmings acting as one but thinking alone.

          At the moment our actions are to stay on rightmove as we are scared…

          We think alone, due to the competitivness of our market….

          We will die as individuals which will eventually kill the herd…..

          NAEA seriosly need to wake up as 1 force to combat this.

          Even an advert on tv addressing the bulls**t would be nice.

           

          Online = brexit

          Traditional = corbyn

          Its going to be an  easy fight if we dont fight back.

           

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          1. AgentV

            I don’t think we can rely on the NAEA as I am sure they tweeted about being at the national conference of one of their members the other day…..none  other than Purple Bricks !!!

            we need you on board with us Bless You to start making things happen. Can we contact you?

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            1. PeeBee

              We CAN’T ‘rely on’ NAEA – because NAEA isn’t there for anyone to rely on!

              Nor can you ‘rely on’ RICS – for the same reasons.

              Those organisations are impartial in terms of what business model their Members choose to work within.

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            2. Bless You

              What board is that ?

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              1. AgentV

                on board with our new network for independent agents

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  2. AgentPink92

    A key tipping point for PB will be when they have sufficient boards up to bring the name awareness that regularly gets them on the ‘three valuations’ list for sellers.

    When I started my agency 6 years ago the valuation enquiries almost doubled overnight when we hit that tipping point albeit that we had a healthy number of SOLD boards which in my area PB don’t as yet.

    In the last 6 months I have seen more and more boards going up on my patch and I posted a week or so back that I saw two within 100m in a remote Scottish Highlands village over Xmas when visiting relatives.

    Laughing off PB is a dangerous attitude IMO.

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    1. Robert May

      It will not happen unless there is a  10 fold increase in listing reps and the other 3499 listing reps behave as impeccably.

      Having nothing else in an area to offer the average 9 unsuccessful applicants for any property means that for every 1 person who has a positive experience there are 9 other who don’t. The natural course of things, a bad experience is shared with 10 people a good one shared with 3 means 4 people hear good things about the firm 99 people hear bad things.

      The only way to build a business is to do nothing but good and have the patience to wait till it comes good. Buying market share is fine if everyone is clean, qualified and good. You don’t censor reviews if you’re achieving all of that!

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  3. AgentV

    “a full estate agency service for a low fixed fee.”

    As we have said time and time again, that is not what is supplied

    #CONmisery

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  4. Robert May

    I wonder if Peel Hunt are aware of the numbers of  new fee paying listings being put on their books.

    The claim was that profit would be achieved at 3000 listings per month,  other claims were the firm was approaching that. The EBITDA announcement before Christmas gave the impression they had  achieved it so I can see were the metaphorical Emperor would believe the new coat was going to be proper dandy and pucker…. Trouble is 3000 listings per month is 98 new fee paying listings per day every day, it is possible to look at Rightmove, do a basic check of listings in 24 hours and find that 17  (17.3 % of  target to make profit based on published Purplebricks press releases) new listings is  currently a good day for them.

    The re-listings don’t obviously count although they appear as new listings  no additional fee is payable.

    Peel Hunt need to be very careful is backing shares that elementary due diligence undermines. My local and trusted IFA (with 30 years unblemished reputation) dismissed them as puff over substance. I know whose advice I’ll be taking and why I trust it over Peel Hunt’s

     

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    1. Mark Walker

      I wonder if we are talking about different things to Peel Hunt.  We are worrying about making a profit, Peel Hunt are all about the perception of the firm and the fluctuation of its share price.  The ability to make a profit does not seem to be linked to the ability to float on the stock exchange.  I am reminded of the phrase “.com”.

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      1. fluter

        Shouldn’t that be “.con”?

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      2. Robert May

        Yes but investors invested to benefit from HUGE profits. If the game is to get the profit out of manipulating the AIM  I obviously did misunderstand. It wouldn’t be the first time

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  5. inthefield

    Here we go again. Another PB story, sure to get the most comments of the day. I think this year is the last year they can hope to rely on hyperbole. #portaljuggling is catching up with them, the fees are catching up with them, the shocking customer service and conveyancing services are catching up on them. I dont think it will be feasible after this next 12 months to keep saying “we are going to start dominating”. Its sink or swim this year, either way. Personally I hope they fail because its not a like for like service and they are conning the public by pretending it is.Who knows.

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    1. htsnom79

      Tried getting chain details of them yesterday, first automated option was to advise me that the quickest route was to email chaindetails@ then if I wanted to hold, I did, I got one more “you are in a queue” before a non negotiable ” please leave a message” ….. These people do not understand real time, transpires that our prospective buyers chain ( moved down through lawyers in the absence of any other method, tedious ) is expecting to ex this week comp end of the month which is news to our buyer and as far as they are concerned unviable, let’s see what happens today..

      Hyperbole, great word, can never decide if it’s pronounced

      Hyper-bowl

      Hi-per-ber-lee

       

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      1. AgentV

        Second one always makes me sound more intelligent when I use it…. so I go for that.

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      2. inthefield

        hi-per-bo-lee 😉

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      3. mrharvey

        The Superbowl is great, but the Hyperbole is at least ten times better.

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  6. Hillofwad71

    Peelers have forecasted 40,000 instructions this FY year for Bricks  just slightly lower than the 43,000 indicated in the Harman Report when placed .Furthermore by FY 2019 Peelers forecast that they will be achieving 75,000 instructions

    That means in H2 this FY to hit target they have to secure a further 25,000 .January is the third month of H2 where they are already well behind schdeule and will be luckly to get over 2,700 for this month

    They cite Bricks’s  favourable reviews  as evidence forgetting of course Mumsnet , Twitter . allagents etc and the hard fact that  their clients have taken themseves off Facebook due to continued abuse.

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  7. Eric Walker

    FT on 7th January “The 7 analysts offering 12 month price targets for Foxtons Group PLC have a median target of 110.00, with a high estimate of 165.00 and a low estimate of 100.00. The median estimate represents a 10.00% increase from the last price of 100.00” 

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  8. Property Paddy

    is this a story of the tail wagging the dog.

    The fact that PB haven’t produced any sort of profit that would offer share holders some sort of income doesn’t stop pundits recommending buying their shares.

    Of course that is one way to make money out of a dead duck !

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    1. g4lvo17

      People need to remember that brokers get paid a commission when anyone transacts whether the shares go up or down, and because PB looks exciting despite what we all know as very poor product, they will push it to the sheep as a great opportunity, and then later on make another commission when selling the shares at a massive loss because no PB profits materialise and everyone scrambles for the exit, take a look at all previous bubbles, wise investors exit when the herd rushes in and only fools pay to dollar…… just sayin 🙂

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      1. g4lvo17

        soz :- “top dollar”

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    2. PeeBee

      My local Chinese takeaway has been making money out of dead ducks since it opened.

      They seem also to be a deterrent to pigeons also – we never see any hanging around now, either…

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  9. AgentV

    Has anyone managed to find some land registry confirmed sale completions of PB marketed and sold properies, with postcode and house number, yet please? Just want to have a look at a few.

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    1. AgentV

      In theory their should be an average of over 72 new ones a day, according to their claimed figures (88 per cent of 30,000 divided by 365).

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      1. PeeBee

        Erm… no it isn’t.

        Bruce’s latest MM figure is “one sale every sixteen minutes”.  That’s NINETY per day – 32872 per annum.  If you take his previous claim next – that 88% of listings ‘sell’ (whatever that means…), then the number of listings required to produce that ninety per day sale rate is actually 102.25.

        EVERY day. NEW listings. GENUINE new listings.

        I wish them good luck with that.

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  10. AgentV

    Boardroom scene at National Online Lister HQ sometime before Christmas – New Advert Brain Storming Meeting;

    Wide Area Lister (WAL) – “This vendor we found for our new advert said she didn’t use us really because she knew she wouldn’t get enough ‘bread’ for her property sale!!!”

    MD “Then let her eat cake!”

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  11. hodge

    I love it when Purple are mentioned as everyone reaches for their index fingers and makes a cross sign. Away you devil.

    Purple bricks are chipping away at the very existence of the market place and the Countrywides are giving it to them on a plate. Ditto LSL

    Going back years 31 to be precise and you can see the sheer incompetence of the agents who have been given millions to grow and expand and did it with Gay abaondon. New cars, premises in the middle of nowhere, Fancy titles and new fangled complacency wrapped up as a strategy. It seemed liked your knowledge increased with your title or salary. For my part I knew my mantra when i joined the agency/ FS positions.

    As my Dad said “In the land of the blind the one eyed man his King”  You don’t have to be smart, just smarter than those around you.

    Wise words. Now most of those blind people are angry at someone taking their £150K Director roles from them.

    Well my wide words to you.  Learn to recruit properly Corporate agency turnover is over 50%

    Inspect what you expect or go to the branches dummy. You’re not an accountant so why pretend you are.

    Never underestimate another opinion even if their title is not as grand as yours.

    As I, ve just retired with a substantial pension I can only watch with the sort of anxiety that you have with a Lion chasing a small deer, or a pod of killer whales surrounding a seal, you know its going to happen, it,s just the struggle that makes it entertaining.

     

     

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    1. LondonR90

      The sad thing is that if agents combine they can conquer all.

      No time, no cost and no risk.

      If they aren’t willing to come together then they only have themselves to blame. If someone handed me leads on a plate for no work and no outlay I would bite their hand off.

      Instead, it’s better to sit and complain because burying your head in the sand always works.

      Estate agency is a very different animal to what I had imagined. I always knew it would be easy to conquer but never did I know it would be so easy.

      Sad face 🙁

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    2. Property Paddy

      Mr Hodge,

      Purple or any other colour are not likely to take our market just yet.

      Don’t get me wrong they do have a market and one that will grow. But (and this is quite important to remember). Purple are burning cash faster than your agents of the 80’s buying new cars etc.

      And as I am not retired (and in my 36th year in the industry) I can tell you history is doing little more than repeating itself.

      As for how much market they can grow, well lets see. At it’s zenith how much UK market share did countrywide have?  because it’s not going to be bigger and furthermore technology will catch them up and overtake them too with an App based system, straight from your mobile phone removing the need for any agent completely. But there will still be agents because even experienced estate agents who know how to sell a property are more likely to use and pay happily for a good agent to represent their property than do it themselves, as do most homeowners.

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      1. hodge

        Hence the use of the phrase chipping away.

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  12. Hillofwad71

    Hodge

    It wasnt the agents  31years ago who were incompetent  – as clever as a bag of monkeys Most had the last laugh selling out  to the institutions for 11-15 X net profits based on a few good years Either buying back for a song  very shortly after as the new non estate agents owners cocked it up Some starting up again  just down the road  solo as soon as the handcuffs were off having taken the crock of gold

     

    It was the failure of the instititutions o grasp the fact  that it wasnt a good idesashelling out millions to buy people turning them into salarymen   who can walk off into the sunset clients  in tow

    As ever history repeats itself   Countrywide today bringing in a team of ex mobile phose salesmen and  private  medical  care to run a business which they dont fully undersatnd

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  13. Philosopher2467

    This is a very live issue for all agents at present.

    A good friend of mine has recently taken a ‘pot of gold’ for his business and his view is that its not just about PB.

    It’s about the evolution of the way property is bought, sold, let & managed. Other industry’s are facing the challenge of online alternatives to what they do and are having to alter their model and ‘cut their cloth’ accordingly. Anyone who has a requirement for service from someone of experience and ability cannot get that from the online model; fact. You do not and should not get that for free. There simply isn’t enough in it for the quality agent to want to give their hard earned experience away for nowt. Volumes of transactions are the issue and maybe the one agent- one office model. In the US realtors share an office so perhaps that is the way estate agency has to move? Not today or tomorrow but at some point perhaps?

    I think that the online agency will be ‘found out’ as indeed lastminute.com was. The numbers poured into that were breathtaking and a lot of fingers burnt. Investors though have shortish memories and a large number look for the ‘next big thing’. You wouldn’t find Mr Buffet investing in the current online offerings I shouldn’t think and certainly not CWD who are paying top money for goodwill and then peeing off the person who still has the goodwill. Not bright but Mrs P and Ms T believe that all agents are morons from what I’m told and see.

    the lack of cohesion between independent agents has always been a problem. If only there was a way of bringing everyone together then online, rightmove and the corporates would find their businesses irrelevant and marginalised. When all is said and done; it’s in the independants that where all the best and bravest agents having demonstrated that they are entrepreneurs.

     

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  14. Philosopher2467

    Wasn’t there a time that you had to have a physical office to be allowed to appear on Rightmove?

    seems to me that we as an industry may have sleepwalked to the current situation. No through any fault of anyone but because the fractured nature of the business allowed some to take advantage of the situation.

    Here’s a thought; create a buying group? Drop Rightmove and any portal that allows unfair competition. Drop them if they are not completely transparent on what they charge. The corporates enjoy favourable rates at the expense of the independent. Why should they???

    Get incentive deals on all the data you pay to collect by virtue of having an office and conducting your business. It is ironic that the agent pays for the office, staff, boards and all sorts of marketing and then gets a kick in the goolies from portals for what you’ve already paid to produce!!!

    Create this and take back control. The alternative is that no sale no fee is consigned to the past and clients pay for what they have and get.

    Its just an idea is all

     

     

     

     

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