2 year chart

Note the resistance points around 338 to 342

5 day chart

Half yearly accounts were released on Thursday this week.


Profit for the year has slumped to 3.5m from 30.7m.
Essentially however due to the purchase of Bradford and Bingley their sales volume is only slightly down. Of course since they now have 33% more branches than they did at this time last year that's not exactly a good performance.

What this shows more than anything is that they haven't been able to cut costs as fast as the transaction levels have fallen. Of course this is obvious. Many of their costs are fixed - there is a minimum cost to running any company which cannot be removed. This suggests to me that their fixed costs are a large proportion of their business. If the market were to deteriorate futher (more of this later) further impact on profitability would be dramatic.


now some detail.
Estate agency division - turnover 6months to date 118m vs 125m for same period last year.
but profit is now 6.5m loss vs 22.3m profit

This from their chairman on the subject
"In the absence of any deterioration in the market, Sporborg said the group's
estate agency and financial services businesses should return to profitability
in the second half, not least because the number of house sales in the pipeline
is nearly 7,500 higher than at the start of the year.
Countrywide said it has an improved pipeline of sales awaiting exchange of
76.3 mln stg, up from 71.1 mln a year earlier."

now this I don't understand or at least I do understand it but it's fantastic spin. The chairman says they are going to be able to get back to profitability in this division because the pipeline is larger than this time last year. But they didn't own B&B then did they? Of course the pipleline should be bigger - they've got 268 more branches (33%) than this time last year. And to acheive this 7% increase in the pipeline they've got the costs associated with running those extra 33% more branches.
And don't forget that they are losing money on the B&B side of the business at the moment so that increased pipeline includes properties they will lose money on.
You've got to hand it to him - it sounds good but the analysis doesn't stack up.

More puzzling is his comment that the estate agency and financial servicies division should return to profit. The financial services division didn't lose money it in fact made 4.3m so what's he talking about? Is he saying that the combined profit of both divisions will return to profit - if so that would reflect an improvement of 2.1m from where we are now - hardly lots. Frankly it's puzzling to me but I wonder if it's designed to be hard to interpret


Lettings division.
turnover was 13.9m now 19m
profit now 2.7m vs 2.1m
A creditable performance in terms of sheer profit improvement but an underlying margin deterioration.
I wonder how much of this extra profit came from the B&B purchase and how much reflects CWD performance? I don't know.
Margin deterioration suggests this part of business under pressure too.

Overseas
At last they are getting this under control with a loss of only 0.4m on turnover of 1.2m. Compared to this time last year when they lost 1.4m on a turnover of 1.0m that's impressive. Mind you if it was a standalone business losing 400k on a turnover of 1.2m it would be bust wouldn't it?


Onto the financial services division now.
turnover down from 34.1 to 32.6m but profit has nearly halved from 7.3 to 4.3.
Again this is a fixed cost problem. People still need to be employed regardless of whether they do a whole day's work or not.
But further they are issue below the surface. The number of mortgages placed on panel are down from 97% to 83%. This is because the panel are rejected considerable mortgage applications compared with a year ago because the quality of purchaser is alot lower. The mortgages have to be placed instead with less well known companies who will take more risk. It suggests to me that people are trying to borrow too much and even the big lenders are saying no. This cannot be good long term for the business.
CWD are also arranging less mortgages and life cover per property sale with conversion rates down about 10%. This suggests the average house buyer is getting more price astute and no longer just taking the advice of the in-house mortgage advisor. People know they can look elsewhere and are doing so.
I don't think this bodes well long term for CWD.

The surveying division.
turnover flat but profit halved from 16.1m to 8.0m.
Why should that be? well again it's headcount. An extra 38% people employed to do no more turnover. And further why are 38% more people employed if they've only got 33% more branches and they've only done 1.75% more surveys. Doesn't seem like good management and cost control to me.
This people have got to be doing less productive hours per week but there also seems to be a small erosion in the selling price per survey (which can't be good considering wages go up every year)
Note - some logica software costs are probably in here.

And finally the worst of the lot - the conveyancing division.
turnover down from 10.4 to 9.3m but the loss has accelerated from 1.6m to 4.7m (although I suspect this is where they have put the some of the logica software costs of 2m).
Regardless of this turnover per completion is down from 600 to 453. That sounds truly dreadful to me.


Basically this company doesn't seem depending on how you look at it to adequately manage their cost base or alternatively beacause of the fixed nature of having to employ a certain amount of people they are unable to do much about it.

The reduction in the dividend is a classic example of spin too. This is what the rns says
"The board said it remains committed to returning capital to shareholders
wherever possible and said it will return 6.3 mln stg by the end of 2005 through share buybacks for cancellation. It said this decision has been reached after extensive discussions with major shareholders in both the UK and US and will be reviewed by the board regularly."
The first time you read this it appears to say they will spend the reduction on dividend on share buybacks but if you read closer you can see they have introduced a get out clause saying they will review it reguarly. Why insert that clause if they don't see some risk of not doing it?

And it's a further masterstroke as they've reduced the dividend for this and all future years (by implication) yet I don't see a committment to do share buybacks every year in the future.

Further if you read the analysts presentation it says something different - it says "commitment to invest additional 3.5p per share into share buy backs or bank borrowing reduction".
So which is it CWD? And hang on a minute wouldn't reducing bank borrowing be exactly what would happen if you didn't pay the dividend? Er- "we need to get our balance sheet under control so we're going to cut our divident" - Does that sound a little different? Does it sound worrying?

Well it should sound very worrying because this company has a net debt of 48.5m. This half year it made 3.5m before tax so after tax that's 3.2m. Now I know there are other effects on cash flow such as selling property assets and depreciation and such but if it's got 3.2m general cash inflow from general operating activities does it sound sensible to spend 6.5m on share buybacks (and that's on top of the 1.85m it's got to spend on the 1p per share dividend it has kept). I know the depreciation charge is large but it's not that large and you can't keep selling property assets forever as eventually you'll run out (and of course it pushes up you running costs and you pay rent instead)


Onto next half year. A profit of 3.5m this time but who know's next time. The chairman says things will be alright as the pipeline is up but as already discussed the cost base is up more due to B&B.
The best case scenario I guess is that the chairman is right and they make say 10m. The worst case scenario is that the housing market performance in the second half of the year will continue to deteriorate as the BOE have now stated that interest rates are not likely to continue to fall which will affect peoples sentiment. In this case you could easily be looking at a loss rather than a profit. Take a look at the charts on any of the builders (wmpy psn bdev bwy in particular - you can see the city boys have already made their mind up and they now think there's considerably more risk in this sector than there was 2 months ago. This is because the trading statements have been poor and particuarly apparent are the words "challenging" and "sales incentives". Margins are detoriating and this has to be impacting on sales prices (or will do due to supply and demand)

In any event the final dividend is 9p or 16.7M. It seems not unreasonable that some of this might be at risk.


Finally it would be wrong not to comment on Rightmove which is doing well for them. Principally it is doing well because they are the first entrant to the market but if I look through the internet now I see most estate agents doing the same thing on their local websites. They may only be carrying their own properties but most people don't mind checking through their say 5 or 6 local websites rather than using one. I think Rightmove's market lead will get eroded in time so the question is when they will IPO it (note - no news in the interim statements about this which was surprising).

"According to Oriel Securities' analyst Mark Young, Rightmove could generate
earnings before interest, taxation and depreciation and amortisation of 10 mln
stg this year. That level of profitability implies a market capitalisation of
100 mln stg, but Young reckons that Rightmove's potential for growth could
"easily" see it valued at over 200 mln."
So it's worth 100m but will float for double- I have no problem believing that. so that's worth 60m to CWD. Panmure (see later) have valued this as worth 30m
to CWD

But lol if you multiply the profits by 10 to get a decent value for a stock then if CWD made 3.5m first half so say 7m total for year that gives it a value of 70m (plus say the 60m for Rightmove) =130m

this would imply a share price of 0.77 - yes 77p and Rightmove doesn't have nearly 50m of nett debt either. lol. It's a strange world. I'm short.


Please note this is all imho and attempts to reflect my understanding of the results. If there are any errors I'd like to know. Any investment decision you make on this company should be your own.

Note that for balance Panmure have a price target for CWD of 4.00. This is based on a profit for the year of 125m. Yes that's 125m. They've only got to make 121.5m in the second half of the year to make Panmure's target.

CC

AN intersting post - will have a read of the accounts at some time over the weekend

You might find this useful Fundamentalist

http://www.countrywideplc.co.uk/uploaded_photos/reports/AnalystPresentation11Aug2005.pdf

CC - can you put a chart in the header please?
This was just about my last stock trade a few months back - short from 329 for a few.

Choccie - added the charts for you.
Glad you asked me because on the 3 year chart you can see resistance at 338 to 340 ish - right where we are now.

Also all the sell volume kicked in on Thurs at 338.0 I believe there are still plenty of sellers at 338 based on watching L2 the last 2 days

Another good reason to short it. lol

And these charts for you too Choccie.

One month chart for CWD in comparison to the builders



CWD in blue
PSN in red
BDEV in yellow
BWY in black
WMPY in green


As you can see over the last month realisation has set in in the market that all is not rosy in the housebuilding sector. Only PSN the darling of the sector has managed to resist it and even it has turned down Thurs and Fri last week.

It's pretty obvious to me that if the outlook for the builders is under pressure with weaker volumes and margins surely volumes have to be under pressure too in the estate agency business? Gross income too as lower selling prices equals lower commission.

Cheers CC
Just had a look at the indicators - I might be tempted back in :)

Just noticed - the chart at the top was a 2 year chart not a 3 year one - i have edited text

CC

Article in Sunday Times appears to partially agree with you

The price fell on the trading statement issued on 27 April, which is where I was short the day before.

Countrywide sees Q1 loss due to weak trading conditions
AFX


LONDON (AFX) - Countrywide PLC said it will post a loss for the first quarter as previously noted weak trading conditions were exacerbated by the incorporation of a 'previously substantially underperforming businesses' acquired from Bradford & Bingley Group PLC last October.

While the first quarter has witnessed a 'gentle seasonal recovery' in house sales activity, Countrywide said the market remains fragile, and volatile, and slowed in the second half of March.

'Although it is difficult to make comparison with prior years because of the effect of the acquired offices on the comparatives, we believe that transaction levels are between 25 and 30 pct below those experienced in the buoyant first quarter of 2004 and considerably less than one would normally expect.

The company said the housing markets will remain subdued in the short term because of uncertainty surrounding the general election and continued speculation about of further interest rate rises.

Countrywide said its enlarged surveying business has been affected by the reduced housing market activity, and a lower-than-expected level of re-mortgages. But rather than adjusting capacity to match demand, it plans to maintain its team of Home Inspectors and use any slack to introduce dedicated training.

The company also said that while its conveyancing business registered a record number of new client referrals in March, its new computer system has found it difficult to cope with the increased throughput. The company has therefore authorised further systems enhancements to correct this situation.

'Consequently, we anticipate that full implementation will now be delayed by six months. In the meantime, excess business is being panelled to a number of other conveyancing practices with whom we enjoy excellent relationships,' Countrywide said.

newsdesk@afxnews.com

Interestingly the price had regained all of its loss prior to H1 on Thursday.

So tomorrow we have the Rightmove house price survey.

Edit: oops - later this evening.

Lol.

I have only traded CWD once before. I had been watching it for ages and on that very day in April I shorted the stock at about 323 if my memory serves me right. Within 20 minutes I had closed at 307 which turned out to be way way too early as I could have got 290 that day or easily 300 even if I hadn't caught the bottom.

Still 16pts for 20 minutes work wasn't bad and I was happy at the time.


I've alot more time to analyse the company since and watch the trading patterns.

What strikes me most is the balance sheet which is poor to say the least. More on this in another post later.

This is what I see happenning to the cash position over the next 6 months all other things remaining equal.

This is calculated from http://www.countrywideplc.co.uk/uploaded_photos/reports/Interim%20Statement%20June%202005.pdf page 11

All figures in thousands

Decrease in cash last 6 months -7871

Add back Profit on sale fixed assets as this may not happen 2847
income tax paid as tax bill reduced 2500
acquisition of subsids 985
sale of property -5695
issue share capital -28499
Repayment term loan 15000

Total decrease in cash in 2nd half -20733

Note : although dividend reduced this will be spent on share buybacks instead so no cash effect by end of second quarter.
CWD have undertaken to sell further assets so this might help
Above assumes they do not repay any term loan which they did this time. The only reason they could do this was due to the money received from the share placement.
I guess the repayment of the term loan will reduce the interest bill by say 1m in the period

All this assumes they maintain the profit of 3.5m but even if they got this up to say 10m for the full year it looks pretty dire to me.


The key to this is why their trade receiveables are going through the roof? That rise is more than bad credit control. After all their turnover is falling.

At this rate if the profit doesn't increase they breach their 100m loan facility within 12 months unless the funding comes from elsewhere like selling more assets or Rightmove IPO.

And I have to ask who would loan a company 100m when their profit say of 7m a year will only just about cover the interest of say 6.5m? Especially when they have been actively selling off the assets so effectively its unsecured?

Oh and it's got a 14m hole in its pension fund if I understand page 20 correctly

UK house prices fall 0.2 pct mth-on-mth in Aug vs 1.0 drop in July - Rightmove

LONDON (AFX) - Asking prices for UK properties continued to fall in August,
though by a slower rate than in July, a survey by property website Rightmove
revealed.
The survey found asking prices dropped by 0.2 pct in August from July,
compared with a fall of 1.0 pct the previous month.
On an annual basis, house price inflation rose to 2.1 pct from just 0.2 pct
last month, though Rightmove noted that this is due mainly to a large decrease
in August 2004.
There are some "tentative signs" that the housing market is recovering, but
the high number of properties on the market is still forcing new sellers and
estate agents to maintain the 'summer sale' mentality, Rightmove said.
"There is too much unsold property still available to expect anything other
than a continuation of static asking prices this year," said Miles Shipside,
commercial director of Rightmove.
In most parts of the country it will remain a strong buyer's market until at
least the spring of 2006, he forecast.
The number of properties for sale per branch grew to 72 in August from 71 in
July, keeping the market "heavily weighted in favour of the buyer", Rightmove
said.
Buyers' confidence should be boosted slightly, however, by last week's
quarter point interest rate cut by the Bank of England.


Remember, these are asking prices not completion prices and the gap between the 2 seems to be getting bigger and bigger.

So, prices falling and more houses on the market - it's simple economics - the more supply, the less demand and so prices fall.
This is even after BOE dropped rates so it's not encouraging really.

UK house prices edge lower in July but pace of falls slowest in 5 months -
RICS

LONDON (AFX) - House prices edged lower in July but at the slowest pace in
five months as buyers came back into the market gradually, a survey from the
Royal Institution of Chartered Surveyors revealed.
The survey showed that the number of chartered surveyors reporting price
falls for July improved to 36 pct in July, from 42 pct in June and the 37 pct
expected by economists polled by AFX News.
Additionally, completed property sales were up and new purchase enquiries
rose for the second consecutive month. Although overall market conditions remain
subdued, the housing market's lowest activity levels may have passed,RICS said.
July saw a further rise in properties on the market, though growth in the
number of sellers slowed to its lowest in over a year. The buyers market
continues as the stock of unsold properties remains relatively high, ensuring
potential purchasers have plenty of choice and maintain the upper hand in
negotiations.
Although surveyors expect prices to drop again over the coming months the
outlook is at its least negative in a year. There were notable exceptions
however, namely London and the North West where prices are seen rising.
The anticipation of an interest rate cut in August helped raise surveyors'
sales outlook, which hit a two year high. While the economy has slowed, growth
continues at a modest pace which is conducive for generating housing demand.
According to RICS housing market spokesperson, Jeremy Leaf, some signs of
recovery are evident in the market with the August interest rate cut by the Bank
of England expected to support a further rise in buyer activity,
However, there is little prospect of a renewed house price boom anytime
soon, he said.
"Would-be buyers have become more confident as a result of the interest rate
outlook, while the economy continues to deliver steady growth, despite the past
year's slowdown," he added.
"The recent terror attacks have not had any impact on house prices, even in
London," Leaf said.


Exchanges up
Enquiries rose

But still more houses coming onto thte market than being sold

Pretty much as expectations