Shares in the UK’s largest property group, Countrywide (CWD), have collapsed 52% to 24p on a discounted emergency fundraising of £140m to deliver its turnaround plan.
The estate agent specialist is issuing new shares at 10p, a whopping 79.8% discount from Thursday’s closing price of 49.7p. It plans to use the money to pay down debt and strengthen its balance sheet.
Countrywide’s plan is supported by two subsidiaries of funds managed by Oaktree Capital Management, which will have at least an 18.9% stake after agreeing to buy £24m worth of shares.
In the six months to 30 June, an opening pipeline deficit in sales dragged income 9% lower to £303.6m.
Losses after tax have soared from £0.5m in 2017 to £205.8m, reflecting goodwill charges and asset impairments.
London remains a sore spot for trading as political and economic uncertainty from Brexit and stamp duty changes led to more subdued levels of activity.
WHY HIGH GEARING IS A RISK
AJ Bell investment director Russ Mould is worried about the estate agent’s high operational gearing with significant fixed costs to pay staff and keep branches open.
He is also concerned about high debt levels.
Net debt to adjusted earnings before interest, depreciation and amortisation is currently an eye-watering 4.7 times, up from 3.1 times last year.
Operational and financial gearing has created a ‘double whammy’ for Countrywide according to Mould as a softer property market puts pressure on the bottom line, making it more difficult to service borrowings.
