LSL Property Services Plc & Countrywide Plc Eyeing Merger to Cope With Changing Landscape of UK Real Estate

Owners of two well-known real estate brands, Your Move and Hamptons International, the United Kingdom’s real estate giants, LSL Property Services & Countrywide are in talks over a possible £470 million merger. This merger will lead to a new entity formation which shall have a representative base of 14 thousand and estate offices of over one thousand. Though, market experts believe that these companies are struggling and with this merger can control costs by having centralised office and combining IT systems, hence require restructuring.

Countrywide PLC (LON:CWD) is the largest property services group in the United Kingdom, which specialises in both the residential and commercial property markets. The company operates more than 60 high street brands through more than 850 branches across the UK and offers a diverse range of products and services along with a headcount of 9,500 people.

In March 2013, amid a buoyant housing market, the company was valued at £750 million. In 2015, the company undertook restructuring and since then has been trying to recover. This restructuring also led to profit warnings, mounting losses and debt burden along with the Brexit, which has further aggravated the situation. However, last month saw a ray of hope as the housing prices went north showing signs of positive sentiment in property buyers. Countrywide’s underlying income declined by 4 per cent to £290.6 million in the first half of the fiscal year 2019 as against £302.9 million in the first half of the fiscal year 2018. The net debt of the company increased to £90.0 million in the first half of the fiscal year 2019 as against £70.7 million in the first half of the fiscal year 2018.

Since last year, the company has reportedly closed 250 outlets and sold Lambert Smith Hampton, its commercial property arm for £38 million. The traditional real estate giant felt the heat of the rising competition from online estate agents such as Purplebricks, Zoopla and Rightmove. However, the company believes that consumer confidence shall return in the sector. Countrywide Plc is considering a possible all-share combination method for the merger with LSL Property Services.

LSL Property Services Plc (LON:LSL) is a leading provider of residential property services such as residential sales, lettings, surveying, mortgage and general insurance brokerage services. The company provides asset management and property management services, valuations and panel management services to mortgage lenders. Your Move, and the London brand Marsh & Parsons are some of the brands being managed by the company. The company has a representative base of around 4,200 and 350 plus branches. Last year, the company closed more than 120 plus Your Move and Reeds Rains outlets which led to several job losses.

According to the trading update for the fiscal year ended 31^st December 2019, LSL Property Services revenues decreased by 4 per cent. However, on excluding the impact of the planned closure of the Your Move and Reeds Rains branches during the first quarter of the financial year 2019, the company’s revenue increased by 4 per cent in the fiscal year 2019. As at 31^st December 2019, the company’s net banking debt increased to £41.9 million this year as compared to £32.1 million in the fiscal year 2018. The company expects Underlying Operating Profit to be slightly ahead of last year and exceed Board’s expectations for the year ended 31^st December 2019.

However, the discussions between Countrywide and LSL Property Services are still in early stages, and there is no certainty that the offer shall stand.

The business dynamics of the Real estate sector is such that it has long development cycles from planning to construction in phases which can take years to complete. In the advanced economies like the United Kingdom, demographics, technology and environmental issues are becoming new value drivers as the cities are growing at a consistent pace. As an asset class, Real estate is evolving rapidly. There is a lot of money flowing into this sector with the emergence of mega real estate managers. With new value drivers, the real estate landscape has become more complex and pervasive. The real estate investment industry is witnessing rapid socio-economic change and shall remain like this in the near term.

For the first time in the United Kingdom in two years, the real estate prices specifically housing prices have gone north. This change can be attributed to some stabilisation in the economic environment and the Conservative party coming to power after the recent general election.

The average housing prices surged by 2.2 per cent in December 2019 as per the Housing prices data compiled by the Land Registrar. The average housing price in the UK surged by £5,000 in December 2018. The UK property market has shown resilience against the backdrop of extreme political uncertainty.

Let us discuss the share price performance of the two companies - Countrywide Plc and LSL Property Services Plc

Countrywide Plc -Stock price performance

On 25th February 2020, at the time of writing (before market close, GMT 09:16 AM), Countrywide Plc’s shares were trading at GBX 349.60, up by 2.94 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 561.00 /GBX 155.00. At the time of writing, the share was trading 37.68% lower than its 52w High and 125.55% higher than its 52w low. Stock’s average traded volume for 5 days was 128,798.20; 30 days – 124,465.93 and 90 days – 105,591.35. The average traded volume for 5 days was up by 3.48% as compared to 30 days average traded volume. The company’s stock beta was 1.42, reflecting higher volatility as compared to the benchmark index. The outstanding market capitalisation was around £111.26 million.

LSL Property Services Plc-Stock price performance

On 25th February 2020, at the time of writing (before market close, GMT 09:22 AM), LSL Property Services Plc’s shares were trading at GBX 339, down by 0.29 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 345.00/GBX 185.00. At the time of writing, the share was trading 1.74% lower than its 52w High and 83.24% higher than its 52w low. Stock’s average traded volume for 5 days was 335,760.00; 30 days – 148,544.07 and 90 days – 65,291.88. The average traded volume for 5 days was up by 126.03% as compared to 30 days average traded volume. The company’s stock beta was 0.85, reflecting lesser volatility as compared to the benchmark index. The outstanding market capitalisation was around £355.29 million along with a dividend yield of 3.21%.

Comparative Share Price Chart of CWD and LSL

One-year Share price chart (Source: Thomson Reuters)