"The injection of £129 million of cash will keep the wheels turning for now, but that money is being used to pay down debt rather than to fund growth. "
The estate agency group has net debt of about £200m, and around £115m of the share issue announced today will be used to pay down the debt, with a further £14 million used for “general corporate purposes” and to support working capital.
Around £11 million will be swallowed up by fees and expenses of the equity issue.
Following the announcement of the rescue package today, shares fell to aroud 14p, valuing the company at £76m.
Laith Khalaf, senior analyst at Hargreaves Lansdown, commented: "Countrywide is back from the brink thanks to a shareholder bailout, though the estate agent is still fighting an uphill battle on a rather slippery slope.
"The injection of £129 million of cash will keep the wheels turning for now, but that money is being used to pay down debt rather than to fund growth. In other words, this cash is a lifeline rather than a springboard.
"The company’s share price has fallen by around 90% over the last year, so it’s no surprise plans to reward executives in the event of a big bounce back have been given short shrift by shareholders, and withdrawn from the AGM agenda.
"Indeed some of the wounds Countrywide is nursing were self-inflicted, though political and fiscal decisions have played a part too. In particular stamp duty reforms and Brexit concerns prompted a 22% decline in London housing transactions last year, which compounded the operational mistakes made by Countrywide itself.
"Meanwhile digital disruptors like Purple Bricks have started to tuck into the lunch of traditional high street estate agents with gusto. Little wonder then that Countrywide is looking to boost sales of complementary products like conveyancing, mortgages and insurance to make the most out of each customer who walks through the door.
"Looking forward, it’s a long road to recovery for Countrywide. The sales pipeline is not disappearing quite as quickly as it was, but the latest published decline of 9% is still pretty steep. In the immediate future the company also faces a prospective £21 million revenue headwind from legislation banning letting fees being charged to tenants, expected to come into force next year.
"Countrywide now has to retrace some of its steps and rebuild its business. Shareholders will be hoping the housing market doesn’t throw the estate agent a curveball while it’s climbing back off its knees."
