“It’s not for sale. No part is for sale. It’s being turned around. Of course it’s not for sale.”Paul Creffield, Group Managing Director – Countrywide
Those are the words of Paul Creffield, group managing director at Countrywide, and now one of the triumvirate of executives leading the embattled agency group which has seen its share price plummet from 694.0p in spring 2014 to an ignominious 7.5p today.
Not that the decline has been Creffield’s responsibility: the blame for Countrywide’s fall in value and reputation has been put firmly on former chief executive Alison Platt.
Her three year stewardship saw the introduction of a singularly unsuccessful online sales and lettings service – abandoned within days of her departure last year – plus a clear-out of long-standing managers with agency experience, and over 60 branches closing
As Countrywide’s total equity fell from £554.58m in 2015 to £220.27m in 2018, speculation about its future mounted. Much of it concerned partial sell-offs – commercial property arm Lambert Smith Hampton and high-end residential brand Hamptons International were once in the frame. That approach appears to have been dismissed within Countrywide itself but chatter in the industry remains active about a possible sale of the entire group.
Just who would, or could, take on such a purchase? And in a Brexit-mired housing market possibly lacking firm direction for some time to come, is the timing right anyway?
The owner of well-known brands Reeds Rains, Your Move and London-focussed Marsh & Parsons, this is an obvious contender to buy Countrywide. But – and it’s a big but – LSL is in the process of reviewing its own branch structure with 124 likely to close and others set to be sold off as franchises. Times are tough even for successful High Street operations like LSL’s – its agency income was up 3% in 2018 yet its profit per branch was just £18,300 compared to £32,000 in 2017. And it already regards itself as having taken Countrywide’s long-held crown in terms of being the UK’s largest agency, at least by number of properties listed for sale and rent.
A laugh? No: Purplebricks v Countrywide was once the industry’s big story, the former representing ‘disruptors’ and the latter symbolising the old school. “If Purplebricks had the foresight to adapt its business model to require some High Street branches, Countrywide would have been a target in 2016 or 2017” says a former Purplebricks UK executive, who wants to remain anonymous. Ironically, a bricks-and-mortar branch network may have helped Purplebricks which recently issued its first profits warning (down to poor performance in the US and Australia) and has a share value barely a quarter of its all-time high after a £175m sales prediction this year was slashed to £130m. So it now needs UK High Street branches…but can’t afford to buy them.
“If Purplebricks had the foresight to adapt its business model to require some High Street branches, Countrywide would have been a target in 2016 or 2017”Former Purplebricks UK executive
Perhaps surprisingly, this looks a stronger bet than the others. There’s no doubt Britain’s leading portal could afford Countrywide: the average revenue per advertiser – ARPA, the critical measure for portals – has risen £83 in the past year to £1,005, while revenue and operating profit up 10% and 11% respectively: dividends, too, by 12%. So why jeopardise this success by acquiring a bricks and mortar estate agency? The reason is what global PropTech analyst Mike DelPrete calls “the Rightmove dilemma.” He puts it like this: “Because Rightmove has not diversified its revenue streams, growth is almost entirely driven by ARPA … but Rightmove can only raise its prices so much.” The equivalent US portal – Zillow – is now selling houses in addition to listing them, so Rightmove wouldn’t even be breaking new ground by going into agency itself.
The likes of Strutt & Parker and Knight Frank are heavily exposed to London and other UK high-value markets, weak for some years thanks to a cocktail of Brexit, stamp duty shell-shock and changes to the Annual Tax on Enveloped Dwellings and other measures targeting the super-rich. Would these agencies welcome exposure to the less-affected mainstream market? Only Savills has tried this tactic to date, taking an undisclosed stake in online agency Yopa – a move heralded back in 2016 as a deliberate attempt to take Savills into a wider marketplace. But with online more risky now, is it time for a High Street venture? Given Savills’ financial position thanks to its global activities and diversified portfolio, it’s possibly the only high-end firm which could risk this.
“Rightmove has not diversified its revenue streams…but Rightmove can only raise its prices so much.”Mike Del Prete
At one time ‘getting into selling houses’ was considered a shrewd move: Countrywide itself came into existence in 1986 when financial services firm Hambros bought two small independent agencies to form an ambitious new group. But seriously: who or what would buy into the risk-laden residential sales sector today? And rental management is more problematic than before thanks to taxes and regulations making the sector simultaneously less profitable and more bureaucratic. Only Build To Rent – institutional investment in letting – looks set to have a significant future and Countrywide has been cautious at dipping its toe in the water so far.
That summary leads to only one real conclusion: Countrywide is unlikely to be the target of an acquisition anytime soon, at least in its current structure.
“We’re actually very well placed to weather the storm around the market in 2019” insists Creffield. “We’re more diversified than some agency groups, even with in-house legal and financial services arms to mitigate a referral fee ban if it comes; and we’ve a strategy of initiatives for the rental side to mitigate the impact of the fees ban” he adds.
Creffield believes the longer-term ‘Back To Basics’ programme is also paying dividends (metaphorically, if not yet literally). Available sales stock rose 9% in 2018, complementary services like conveyancing add 44p to every £1 revenue from sales, and “over 300 experienced people who left in recent years are now back – and delighted to be back” he insists.
Some question marks remain, not least as to why the long-time chairman Peter Long – now a strident critic of the Alison Platt era – took so long to realise the company was moving in the wrong direction under her leadership.
But independent support for the company’s new approach comes from Berenberg Bank. In its spring 2019 assessment of the UK real estate sector, it describes Countrywide as “investible again” despite the pain being endured as the turnaround programme takes effect.
Ironically, that same Berenberg report downvalues Purplebricks by a whopping 80%, which goes to show how fortunes change rapidly in these unpredictable days.
Could Countrywide rise, phoenix-like from the ashes, and in future years make a bid for Purple-bricks?
Impossible, surely? But then, the impossible happens a lot these days.