Swiss bank UBS has initiated coverage of the UK estate agent sector.
The bank expects UK-wide housing transactions to fall 6% this year and 5% the next – with a 10% drop in London in 2017.
It has put Foxtons and Savills at ‘buy’, Countrywide at ‘neutral’ and Purplebricks at ‘sell’.
It said that Purplebricks’ valuation is stretched.
However, UBS said online-only agents are structurally altering the landscape of the sector and are gaining “significant” market share as consumer awareness of them, and willingness to use them, both grow.
UBS said conventional agents most able to differentiate themselves, such as Foxtons and Savills, justify a premium price and will be most successful in withstanding the changes.
As far as Foxtons is concerned, UBS said the UK referendum result has added significant uncertainty, in particular for the London housing market.
It has factored in a declining market in the second half of this year and 2017 within its forecasts.
However, in the medium term it sees organic growth potential at the company, driven by a roll-out of five to seven new branches per year.
It said Countrywide was most at risk from this shift to onliners, with pressure on commissions over the last six years indicative of its limited ability to respond to online competition.
On Purplebricks, UBS said: “With the business not yet in profit and on EV/sales of 18x, we see valuation risks.
“The model has been proven fit for growth, but the self-employed nature of franchisees, as well as the large revenue cut that Purplebricks takes from its franchisees, for us creates question marks around scalability.
“There are also significant costs associated with growing a web-based company.”
Foxtons’ shares finished up 2.75p on the day at 130p, wiping out the falls after its profit warning of last month.
Savills, however, ended down 3p at 645p.
Comments (2)
AN OPINION.
Posted this a few days ago but for those that missed it:
It appears to me that many on liners are buying market share in a vastly reduced transaction market and shall soon realize that to make any money they may have to substantially increase their fees, may be closer to what traditional independent agents charge, in the ‘average’ out of London market.
In this ‘average’ market place, I believe that many independent agents charge a fair fee. Let us not forget that the average fee apparently is now around 1% compared to 6% plus in many parts of the world. I cannot understand why the traditional agency leaders are not countering the on liners spurious and in many cases inaccurate fee saving claims (ie House Simple, save on average £5000 – my minimum fee is £1750)! In addition, why is no one highlighting stamp duty costs per transaction which are generally considerably higher then the average agency fee and therefore preventing so many people from moving – perhaps this is why the Government favour the on liners to try and offset their own extortionate‘fees’?
As many on line companies are losing vast amounts of other peoples money they shall have to look at these higher commission markets such as Australia and USA and even the prestige end of the market.
Perhaps that is why Z are re-marketing Prime Location as this market is where the on liners future profit may potentially arise in the UK – if they can hold out and appease their shareholders/stock market long enough to establish a footing in this market.
By spending valuable UK investor money in Australia, I believe that PB have acknowledged this. If this is the case, I wonder whether their shareholders/stock market were told that the UK was an experiment to fine tune their offering for the overseas market now PB appear to realize that they are unlikely to achieve any significant profit in the UK? Would UK shareholders have a share in any Australian (ASX) based stock market float? If not, why not, after all, it is their money that funded this expansion?
Anyone with a maths degree want to argue what everyone been saying that you don’t need a degree in maths to realise loss making businesses like PB shouldn’t have a stupid share price.
I’ve said it before and I’ll say it again. anything over 36 pence is too high even as a high risk punt.