Property stocks: the aftershock

Quantifying the ban on tenant fees
Thursday 01 Dec 2016 Author: Tom Sieber

The potential impact to earnings from the recently-announced ban on upfront lettings fees is beginning to emerge for the quoted property agent contingent.

The move, announced in the Autumn Statement, led to big share price declines at the likes of Countrywide (CWD), compounded by a mild Brexit-related warning (24 Nov). Other names suffering a decline included LSL Property Services (LSL) and Foxtons (FOXT).

Investment bank Jefferies estimates a hit to 2017 pre-tax profit (assuming a ban was effective on 1 January 2017) of: Foxtons -6.7%; Countrywide -9.2%; LSL -9.2%; and Purplebricks (PURP:AIM) -2.5%.

Online estate agency Purplebricks claims there will be no ‘meaningful impact’. We view its shares at 108p as a solid ‘buy’.

Belvoir Lettings (BLV:AIM) says the impact on its gross profit from the ban is anticipated to be less than 8%. Broker Cantor Fitzgerald comments: ‘That’s low relative to independent agents which could see up to 20%-25% from similar fees giving Belvoir a relative advantage versus competitors.’

Its shares have fallen by a third in value since September to 102p. Contrarian investors should seriously consider buying at that level.

Cantor believes the final impact could be significantly less than feared as Belvoir and the industry passes on the costs to landlords as higher fees, and to tenants as a small increment to rent. (TS)

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