Numis upgrades Countrywide to 'add' from 'hold'

(ShareCast News) - Countrywide's shares jumped on Thursday as Numis upgraded its rating to 'add' from 'hold' despite a profit warning from the real estate agent.The company warned that 2016 earnings will be lower this year, as commercial and London residential transactions have stalled since Britain voted to leave the European Union on 24 June.Countrywide posted a 25% decline in first half profits to £22m, reflecting "investment to underpin future growth" and a slowdown in the housing market in May and June before the EU referendum. Revenue rose 9% to £370m, with growth across all businesses helped by gains in market share.Numis said the company's half year results show the impact of more challenging market conditions in the second quarter of this year after the increase in stamp duty charges on second homes and buy-to-let properties on 1 April."The company states that conditions have deteriorated more post referendum, particularly in London and the South East and this has prompted Numis to downgrade 2016 and 2017 estimates by circa 30%."Countrywide said it was unlikely to match the annual adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) level of £113m seen in 2015.Accordingly, Numis reduced its full year EBITDA from £123m to £97m, which resulted in a 31% downgrade to reported pre-tax profit to £59.9m and adjusted earnings per share of 25.6p.The broker also noted that Countrywide held net debt, including finance leases, of £258.3m, up from a previous £184.9m, reflecting £38.5m of acquisition spend, capital expenditure and working capital outflow. Numis expects net debt to fall to £200m by year end, based on retained profit and the group adopting a more cautious view on investments. "Whilst today's downgrade does not come as a surprise, it has led us to downgrade our target price from 416p to 286p, which is based on 10x 2017 PE - in line with our rating on LSL (Property Services), although we would highlight Countrywide's higher level of indebtedness which does pose some risks if market conditions continue to weaken."Shares were up 14.07% to 282.10p at 1048 BST.