City analysts issue 'sell' ratings for several estate agencies
Berenberg, the world's second-oldest bank, has issued sell ratings to estate agents Countrywide and Foxtons. The Hamburg-based bank said: "Countrywide has been caught with high debt, having invested in acquisitions just as the house transaction cycle turns and competition intensifies". It also criticised Foxtons for its "indefensible" fees. In contrast, Berenberg offered a buy rating for online operator PurpleBricks, which it said had a "monopoly on growth".

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City analysts yesterday issued a ‘sell’ rating on Countrywide, saying that its digital offering has fallen flat.

In a note to investors, Hamburg-headquartered Berenberg – the second oldest bank in the world – also issued a ‘sell’ rating on Foxtons, a ‘hold’ for LSL and a ‘buy’ rating on Purplebricks.

The bank has initiated coverage on all four, saying it is “disliking” the stocks of both Countrywide and Foxtons.

It describes Purplebricks’ offering as ahead of the competition as its technology enables it to provide “a better service at a far lower price”.

It said of the UK’s largest agent: “Countrywide has been caught with high debt, having invested in acquisitions just as the house transaction cycle turns and competition intensifies as the industry faces intense disruption by hybrid agencies.

“Meanwhile we think its digital offering has fallen flat – mainly because it is competing with itself and other traditional estate agents rather than Purplebricks, in our view.”

Berenberg also said that after selling its stake in Zoopla last year for £48m and raising £37m in new equity this year, Countrywide could be running out of options to clear its debt.

It said that Countrywide faces the prospect of continuing restructuring and claimed the agent is losing market share.

Berenberg again cited pressure from Purplebricks in its analysis of Foxtons.

It said: “Foxtons is a premium supplier of estate agency services in London.

“We see its service as offering a good customer experience but its cost base remains high and fixed during a slowing of the London sales market, fee pressure from the success of Purplebricks in key areas and declining rents.

“We expect Foxtons’ fee of 2.5-3.0% to be indefensible when Purplebricks charges the equivalent of 0.2%.”

Berenberg gave Foxtons shares a target of 50p.

The bank’s analysts described LSL’s core business as being under pressure, but said the business is diversifying.

The bank said it suspects LSL brands, including Your Move, Reeds Rains and Marsh & Parsons, are losing market share to Purplebricks.

LSL bought a 17% stake in online agent Yopa last month for £20m.

Berenberg said: “YOPA can argue to be the second largest hybrid agency after Purplebricks, and one of the few estate agents which is showing growth.

“While a clear hedge for LSL, it somewhat undermines management’s statement that the future of estate agency is the traditional service delivered from high street offices.”

Of Purplebricks, recipient of the only ‘buy’ rating, the analysts said: “Since starting in April 2014, Purplebricks has rapidly grown to become a dominant name in the UK estate agent industry.

“It has doubled its net number of listings since the start of the year to 16,000 and has a near-monopoly on growth as the underlying market remains subdued, in our view.

“We expect its growth to be maintained.”

Berenberg said Purplebricks has “a monopoly on growth”.

It went on: “All the large traditional agents that we track have shown flat to declining business and the other hybrids and onlines have generally seen no growth, demonstrating the specific appeal of the Purplebricks offering.”

It said that a successful launch in the US would be “transformational for the scale of the group’s earnings”.

Yesterday, Countrywide shares began the day at 112p and finished at 114p; Foxtons’ shares fell 2% to finish at 65p; LSL shares were stable at 232p.

Purplebricks shares piled on over 5% to finish at 366p – although a long way short of their July peak of 513p.