How do you inform a fixer higher from a cash pit? That may be a query that Connells, the property agent, is investigating with its strategy to beleaguered rival Countrywide. Its indicative supply of 250p per share values Countrywide at £82m, a punchy 72 per cent over the inventory’s asking value.
It seems like a horrible time to purchase. The expiry of a stamp responsibility vacation on the finish of March places the UK’s booming housing market on a cliff edge and conventional branch-based property agent chains are already within the hazard zone. Bottlenecks within the system have resulted in wait instances of as much as 20 weeks between supply and completion, when their charges are paid. Which means at the moment’s patrons could also be caught with a tax invoice they can’t afford, leaving brokers with collapsed transactions.
Consolidation is unlikely to assist. Simply take a look at Countrywide itself. Numerous acquisitions since its float in 2013 burdened the group with a heap of debt and a patchwork of native manufacturers reasonably than a coherent enterprise. Scale offered few benefits versus the small operators who make up about two-thirds of the company market and who can carry on buying and selling it doesn’t matter what. Throughout the nice monetary disaster, UK housing transaction volumes greater than halved however solely a fifth of branches closed.
Countrywide’s administration final 12 months set out a back-to-basics strategy, however with the shares down 98 per cent since flotation, it’s a good distance from residence. Chairman Peter Lengthy final month admitted as a lot when he backed his personal ousting as a part of a recapitalisation that may have handed management to Alchemy Companions, the distressed enterprise specialist.
Connells’s bid curiosity implies that plan must be lifeless within the water. What seems much less sure is whether or not its supply will attain completion when competitors watchdogs are on guard.
Countrywide and Connells are successfully monetary providers companies that simply occur to promote homes. Gross sales and lettings offered simply 10 per cent of Countrywide’s adjusted ebitda final 12 months. The remainder was break up between client finance, primarily charges from pushing mortgages and insurance coverage, and a business-to-business arm that arranges conveyancing and surveying.
Connells and Countrywide have 1,500 branches between them, the overwhelming majority of which might be shut down with out damaging the underside line. The mixture of providers companies issues far more. Business watchers estimate a mixed market share for surveying of round 40 per cent.
There isn’t any certainty that the Competitors and Markets Authority would let such a focus go, significantly when housing transactions are stalled by an absence of competitors. Somewhat than look forward to the CMA to type a view, shareholders ought to take the cash and run.
Stroll away from Dignity
Funeral group Dignity’s newest replace is like wanting by means of a glass darkly. It offers shareholders a dim imaginative and prescient of a enterprise and little steerage for the long run. It is a firm as soon as likened to an unregulated utility.
Up till 2016 the value of laying family members to relaxation rose, like faculty charges, above inflation for years. However then Dignity’s primary rival, the Co-op, launched a value conflict because the variety of annual deaths started to slip and the UK’s competitors authorities began taking an curiosity.
Excessive mounted prices, together with on Dignity’s £500m-plus long-dated debt, meant margins reversed. Final 12 months the group halted dividend funds. Early this 12 months, its long-serving chief govt left, leaving the newish chairman in sole cost.
Now it seems the pandemic wasn’t the present to funeral administrators that many had anticipated. Deaths rose however earnings per enterprise dropped.
The long-awaited probe by the CMA in August ducked value controls and as a substitute talked of daylight measures to power disclosure and transparency. That gave Dignity’s shares a reprieve.
However the outlook has not cleared. Deaths rose 15 per cent within the first 9 months of the 12 months and revenues inched upwards. However lockdowns restrict the providers provided, akin to limousines. Working earnings fell eight per cent. And the group was tight-lipped on its strategic rethink, first promised two years in the past, besides to speak of extra price cuts and gaining headroom on its debt agreements with lenders.
In the meantime, monetary and trustbusting watchdogs proceed to circle. The CMA has not shelved value intervention in the long run. The Monetary Conduct Authority, which now oversees pre-paid funeral plans, is wiggling its eyebrows.
Dignity experiences that after a spike owing to Covid-19, the variety of deaths within the third quarter fell 2 per cent in opposition to the identical interval final 12 months. “It’s potential that the tragic occasions of 2020 could imply 2021 and 2022 might expertise a decrease variety of deaths than in 2019,” the group provides.
Its shares nonetheless rose by a tenth on Monday. Phoenix Asset Administration, holder of 28 per cent, could hope to do as its title suggests and rake one thing from the ashes. Different shareholders ought to stroll away with their dignity intact.