Shares in Countrywide have plunged by more than 60% after the struggling estate agent asked investors for £140m of emergency funds to save it from collapsing under the weight of its debt.
Countrywide, which has nearly 10,700 staff and operates under about 50 brand names including Hamptons International and Bairstow Eves, launched the rescue plan after downgrading profit forecasts four times in eight months.
It will raise cash by offering new shares to existing investors but at an 80% discount to their previous value, a markdown that sent the company’s stock market value tumbling as much as 70% in early trading.
The fall meant that at one point the UK’s largest property services company was valued at less than the £35m average house price on Britain’s most expensive street, Kensington Palace Gardens in London. Shares closed down nearly 63% at 18.5p.
Like rivals such as Foxtons, which announced that it had sunk to a £2.5m half-year loss earlier this week, Countrywide has suffered from malaise in the property market, particularly in the south-east.
Estate agents have said Brexit-related uncertainty – coupled with stamp duty rises on properties above £1m and second homes – has brought the housing market in London to a near standstill.
While the number of housing transactions has been in decline, traditional estate agents have also come under mounting pressure from no-frills online agencies.
Alongside its fundraising plan, which will be used to whittle down its £212m debt pile, Countrywide revealed it had fallen £206m into the red during the most recent six-month period. The scale of the loss was largely due to a £211m charge from slashing the value of its assets and brand.
The executive chairman, Peter Long, blamed the company’s woes on the “completely wrong” strategy pursued by the former chief executive Alison Platt, who resigned in January.
Platt sought to run the estate agent like a retailer, bringing its sales and lettings businesses together and concentrating expertise centrally with local branches functioning like shops, a plan that triggered an exodus of middle management.
“It completely destroys the business model by saying it’s a retailer and saying we don’t need management expertise locally,” said Long. “You disempower people, demotivate them and lose key expertise.”
He said high debt, racked up during an acquisition spree in 2014 and 2015, was “compounded by the perfect storm of a chief executive getting the strategy completely wrong”.
Long doubled his salary to £360,000 when he took over day-to-day running of the business from Platt, adding the role to his vice-chairman’s seat at travel group Tui and the chairmanship of Royal Mail.
But he insisted he was not overburdened, despite also dealing with the fallout from last month’s pay revolt at Royal Mail, one of the largest shareholder rebellions in corporate history.
He said Countrywide’s performance was improving, vowing that a turnaround plan could result in the company making an £80m underlying profit within three years.
In a statement to the stock market, Countrywide said its problems had been exacerbated by a flagging housing market, particularly in London.
“The prime central London housing market continues to experience low levels of activity owing to political and economic uncertainty, particularly in relation to stamp duty and Brexit, which is felt more acutely in the capital,” it said.
Laith Khalaf, senior analyst at investment adviser Hargreaves Lansdown, said Countrywide had been “damaged by its attempt to bring the sales and lettings businesses together under one roof, and by its centralisation programme, which took decisions out of the hands of local managers”.
Khalaf added: “Meanwhile the entire sector has been going through an existential crisis thanks to digital disruption.
“On top of that, Brexit and changes to stamp duty prompted a 22% fall in London property transactions last year, ensuring Countrywide didn’t get away with its wayward strategy.
“Investors now need to decide if they are throwing good money after bad, though even the best-case scenario is a long road to recovery.”
While investors still have to vote on the fundraising plan, it has been underwritten by Barclays and stockbroker Jefferies, which will buy the shares if shareholders decide not to.