The woes of Foxtons and Countrywide could be symptomatic of a wider malaise in the property market undergoing structural change.
The conclusion is drawn in an article in Investors Chronicle headlined ‘Estate agents exposed as the tide rolls out’.
The article, by Mark Robinson, only talks about Foxtons and Countrywide – and manages the rare feat of not mentioning either Purplebricks or quoting Russell Quirk.
Of Foxtons, it says that while its costs exceeded income, the firm still exited the half-year with £11.8m in cash.
That, says Robinson, should see it through to the end of 2019 before it has to consider any funding options.
In contrast, Countrywide’s debt of £212m is nearly six times greater than its current market capitalisation.
Robinson says that its emergency cash call could horrify shareholders, given the hugely discounted shares placing.
He adds: “Shareholders may be aghast at the 10p placing and open offer price but are unlikely to baulk given the issue document states that ‘under the terms of the Amended Credit Facility, the group’s lenders could (following a short negotiation period) demand repayment of all borrowings, which the group cannot afford’ – game over.”
Robinson says that the problems besetting Foxtons and Countrywide could simply be the result of excessive leverage, constrained mortgage financing and a cyclical downturn in the London housing market.
But they could also be symptoms of structural changes under way in the UK housing market.
Separately, bank Credit Suisse has cut its share target price for Countrywide to 17.2p – higher than the share finished yesterday – and said the group would take a £!4m hit when the fees ban comes in. It also said that the group’s desire to grow profitability through cross-selling could be hindered by a possible ban on referral fees, currently the subject of official consultation.
Yesterday, shares in Countrywide ended almost 10% down, at just over 14p. Shares in Foxtons ended almost 2% down at around 55.5p.