Proactive Investors - Run By Investors For Investors

Countrywide looking at a rights issue to raise more than the current market cap of the group

Numis expects that Countrywide's second half earnings will also be down materially year-on-year
Interior of a house
The new shares could be offered at a 30% discount to the current share price

Estate agents rarely get much sympathy and Numis Securities has not been slow to stick the boot into Countrywide PLC (LON:CWD) after yesterday’s profit warning.

The broker has got off the fence – it previously rated the shares as a ‘hold’ - and recommended its clients sell the shares after Countrywide flagged up a material reduction in profit estimates and the need to raise new capital.

READ: Countrywide plunges after signalling need for fresh capital following another profit warning​

The broker has slashed its forecast for 2018’s earnings before interest, tax, depreciation and amortisation (Ebitda) by 35% to £32.4mln.

Shares in Countrywide were down 5.6% at 51.9p following the downgrade, valuing the entire company at around £131mln.

Management has previously targeted a net debt/EBITDA ratio of 1.5-2.0 and based on that Numis thinks the company will need to raise around £143mln (net) – or £153mln gross - in what looks like an inevitable rights issue.

Numis’s back of a fag packet estimate is that the new shares will be offered at a 30% discount to the current share price.

“FY2017 net debt stood at £192mln, and given low H1 [first half] EBITDA we think it will have risen to c.£200mln - suggesting net debt/EBITDA of 6.25x in FY 2018. Accordingly the group ‘is looking to put a long term capital structure in place’, with an intention to reduce debt by at least 50% through equity finance. Oaktree (c.30% shareholder) has stated that it is supportive and Countrywide will give more details at its interims,” the broker said.

Numis said a right issue would lay to rest balance sheet conc3erns but it reckons profits would need to more than double from this year’s projected level to make the shares look attractive following the rights issue.

In anticipation of a discounted rights issue, the target price has been reduced to 38p on a pre-rights basis.

View full CWD profile View Profile

Countrywide Timeline

Related Articles

Building
November 16 2018
“No properties inside the M25, with one or two minor exceptions,” says Richard Shepherd-Cross, managing director of the REIT's investment management arm
Care room
September 05 2018
It is not the only listed operator in the healthcare sector but it is one of the few property companies to offer exposure to what is a low-risk, non-cyclical market
Kenya
October 02 2018
The Africa-focused property trust raised US$132mln when it joined the London market

© Proactive Investors 2018

Proactive Investors Australia PTY LTD ACN:132787654 ABN:19132787654.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use