- The company goes to statutory profit until April
- New pricing strategy aimed at increasing sales by 20% per year
Pre-pandemic, the indictment against the real estate agent purple bricks (PURP) included a flawed commodity and an overzealous expansion strategy. Missteps take a long time to correct. Despite high expectations after its 2015 float, the shares are still trading 12% below their listing price, against a total return of 50% from the FTSE All-Share.
Now, with its reduced geographic focus in the UK, the world has arguably turned to the company’s self-service home buying proposition. Online property viewing is no longer the far-fetched proposition it once seemed, a change that looks likely to continue even as concerns about the virus’s close transmission fade.
Unfortunately for investors, the hectic nature of the real estate market has made it difficult to verify this hypothesis.
A 14% increase in instructions in the year through April seems to be a source of hope, although this has to be compared to Purplebricks’ market share of properties sold by volume, which has fallen from 5. 1 to 4.6%. A rising tide did not lift all the boats with the same force.
Reducing volumes is therefore a challenge. Like most players in the housing market, management believes supply and demand will return to “a more balanced post-summer equilibrium” as the stamp duty tax holiday ends.
Managing Director Vic Darvey’s response to a tougher prospect is an overhaul of Purplebricks’ pricing strategy after a successful trial in the Northwest. This includes a money-back guarantee if a property fails to attract an offer within 10 months, and a two-tier pricing model that the company hopes to increase revenues by 20% per year.
Investors are hopeful that an equal rise in cost inflation will not follow, as margins remain tight.
Although statutory results suggest the company can fund itself through cash generation, more than half of last year’s operating profit came from non-commercial sources: a reclassification of a stake in its German counterpart Homeday and a £ 2.3million credit from canceled directors stock options. Another gain of £ 2.3million from the sale of the Canadian branch and £ 0.9million of positive currency movements explain the rise in net profit from £ 3.9million to 7.7 million pounds sterling.
Management says it is too early to quantify the benefits of the pricing overhaul for the current fiscal year. The city – which expects earnings of 1.3 pence per share in the 12 months to April 2022 and 1.8 pence the following year – will likely wait for evidence of an operational gear. We also remain cautious. Hold on.
Last seen IC: Sell, 105p, April 14, 2021
|PURPLE BRICKS (PURP)|
|ORDER PRICE:||83.8p||MARKET VALUE:||£ 257 million|
|TO TOUCH:||83.3-84.5p||UP TO 12 MONTHS:||113p||LOW: 43p|
|DIVIDEND RETURN:||NIL||P / E RATIO:||84|
|NET ASSET VALUE:||28.6p||NET CASH :||£ 73 million|
|Year to April 30||Turnover (£ m)||Profit before tax (£ m)||Earnings per share (p)||Dividend per share (p)|
|Ex-div:||n / A|
|Payment:||n / A|