More trouble for Countrywide as bank slashes key 'target price'

The Swiss investment bank Credit Suisse has slashed its target share price for the company from 77p to only 17.2p. 

The reason for the drastic reduction in its target price is the timetable given by the troubled estate agency group for shareholder approval of its capital refinancing plan - this is scheduled for August 28 when the firm has its AGM.

"Without greater clarity beyond 28 August, we move our forecasts in-line with management guidance" says a Credit Suisse statement. 

Although the size of the £140m fund-raising exercise had been broadly expected by analysts, the decision by the company to offer an 80 per cent discount to its share price came as a surprise to many.

A price target is set by analysts such as those at Credit Suisse to suggest the best likely price for an investment on the basis of assumed future activity. 

However there is some comfort for Countrywide as Credit Suisse did at least upgrade its classification of the company from ‘underperform’ to 'neutral'.

The Credit Suisse note to its client investors continues: “We refrain from turning more optimistic on Countrywide as, whilst the current share price looks depressed, we still see some headwinds ahead of the group and thus do not believe the risk/reward trade-off has yet swung to the upside.  

“Specifically: i) UK housing transactions are showing little sign of improvement; ii) we estimate the group is facing a potential £14m EBITDA hit when the ban on lettings admin fees is introduced next year; and iii) we believe the group's desire to grow profitability through cross-selling could be hindered by a potential ban on estate agent referral fees (which is currently in consultation).”

As has been extensively reported on Estate Agent Today, Countrywide has issued a series of profit warnings since the start of 2018 and in its interim figures reported last week it revealed a pre-tax loss of £205.8m in the first half of the year compared to a profit of £500,000 last year. 

Income dropped nine per cent to £303.6m and adjusted earnings plummeted over 50 per cent to £10.7m.