I often relish the mismatch between bland chief executive comments in company results and the market’s over-excited reaction.
There is a classic today, in the interim results of property company Countrywide (LSE: CWD) for the six months ended 30 June. CEO Alison Platt assured investors that: “We are building a stronger business for our future and remain on track with our goals to broaden our digital capability, reduce our operating cost base and strengthen our balance sheet… we expect our results and our leverage for the full year to be within the range of market expectations.”
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The response to these soothing words? A 10.65% drop in the share price, triggered by a perilous 10% year-on-year plunge in total income, from £370.3m to £333m in first-half 2017. Operating profits fell from £28.3m to £6.5m. Earnings per share dropped from 9.8p to -0.1p. Countrywide blamed the 7% drop in housing transactions, while noting that its sales market share held broadly flat at 4.9%.
Countrywide said it continues to invest in cost and growth initiatives to build a sustainable and profitable business and remains committed to reducing its leverage, which is the long way of saying: we are not paying you an interim dividend this year. There was positive news too, with growth in mortgage distribution market share, cash generation of £11.8m against £1.6m last year, and a reduction in debt from £248m on 31 December to £217m.
UK house prices remain robust but shortage of supply and lack of affordability are hammering transaction levels and Countrywide is paying the price. Trading at 8.49 times earnings and yielding 3.49%, it may be worth a punt for those who are bullish on bricks and mortar. City analysts reckon that three years of double-digit EPS losses could reverse in 2018, with a rise of 14%. Today could be your chance to get in early.
What does the FOXT say?
London-focused estate agency chain Foxtons Group (LSE: FOXT) is also hurting today, down 5.25% after posting a 64% drop in profits in its interim results for the half year to 30 June. Pre-tax profits plunged from £10.5m to £3.8m, as revenues fell 15% to £58.5m.
Lettings revenue dipped 2% to £32.1m, although volumes rose 1% and Foxtons CEO Nic Budden hailed this resilient, recurring revenue stream. Sales revenue fell a hefty 29% to £22.2m, although that looks worse than it is due to last year’s Q1 surge as investors rushed to beat the April 2016 stamp duty surcharge. Q2 sales revenue fell just 3% overall, partly hit by electoral uncertainty.
At least Foxtons is paying its 0.43p interim dividend. Budden said the company is working hard to beat challenging conditions, and its balance sheet and brand should support long-term shareholder growth. Trading at 16.84 times earnings and yielding 2.19%, it is less of a bargain than Countrywide.
That said, Foxtons has struggled for some time, with pre-tax tax profits more than halving to £18.77m in 2016, and EPS falling 54%. It has levelled off after a dismal three years that have wiped two thirds of its share price, but the turnaround could take more time.