Countrywide

3:47 p.m. Fri 11 Mar 2005

Countrywide, the UK's largest estate agency chain, warned of 'significantly' reduced sales volumes. Countrywide said the outlook for 2005 'remains uncertain' and also reported that the pipeline of sales brought forward from last year was £15.9m lower than the previous year

The Company has four main business divisions: estate agency (which earns 50% of profits) financial services (17% of profits), residential conveyancing and residential surveying and valuation (33% of profits).

The company reported a 29% decline in operating profits in the continuing business to £58.2m for the year to December 2004. A number of one-off factors did drag earnings including losses arising in the new acquisitions (£7.6m) start-up costs on the remortgage conveyancing business (£1.1m) and a provision for branch and office closure costs of £2.6m. However, the main reason for the reduction was the "severe downturn" in the residential housing market which resulted in lower turnover in the Estate Agency Financial Services and Surveying and Valuation Divisions.

In September Countrywide issued a statement reviewing the outlook of the company's prospects, reporting that transaction volumes had fallen in August 2004 from the levels of August 2003 on its principal lines of business. In contrast to the relative optimism in the interim results, this was a tale of unremitting gloom: real estate transactions were down 20% in August 2004 (compared to August 2003) and the surveying and valuation business was down 29%. These two lines contributed about 87% of the company's operating profit in the half year.

The financial services business, which makes up the rest of the operating profits (the conveyancing business reported a marginal loss) suffered from a knock on effect as business volumes in the other departments decline.

Countrywide's views of the market serves to confirm our own bearish sentiments on the sector. The company is well run and commendably honest but even with the price down to 352p the PE of 12.5x the stock looks expensive against the sector.