An article by Amilia Stone on the Directors Talk website in which Zeus Capital’s research analyst, Robin Savage, discusses Purplebricks’ financial strength makes for interesting reading – while bearing in mind that Zeus Capital has acted as advisor and investment broker to Purplebricks.
Zeus’ research note published last week says that Purplebricks is ‘well known but misunderstood’.
In the interview Savage says the company has ‘a strong presence in middle England, typically at the lower end of the market and has a lower share of high-end properties. He says that via its sale boards Purplebricks ‘does have physical presence’.
Zeus estimates that since the IPO in December 2015 Purplebricks has spent over £100 million building its brand and that by its own measure it has achieved 98% awareness in the market.
Its ‘brand conversation’ (the sum total of the ways in which the business communicates with would-be clients) is around the mid 30%, which means a substantial proportion of potential vendors will consider using Purplebricks – though only a fraction actually go on to do so.
Savage says, ‘we see it [Purplebricks] as well positioned to grow its market share.’
As to the things of which he thinks people are less aware, the first is that Purplebricks is ‘exceptionally well-funded’ with around £70 million in cash and no debt. It’s gross profitability is over 60% and it is looking at revenues of nearly £100 million with admin and media costs of under £50 million.
The second factor is the potential for growth of market share. Purplebricks claims around 5% overall. Savage says that in some markets it is getting nearly 10% market share and he says ‘the real change for management is to increase the company’s market share’ in areas where they have less than 10%. His forecast is that overall their market share between now and April 2023 will rise to 5.7%.
Savage says that Zeus has been recording Purplebricks’ level of instructions on Zoopla since the time of the IPO and says that the data puts Zeus, and by extension investors, in a position where they, ‘can be very confident about their current trading.’
A research paper by Zeus says that by weekly figures, Purplebricks has been getting around 200 instructions per day, with an annual average of about 136 per day. Savage expects that number to rise to 155 by end of April, ‘which means that our forecasts are set to be met or exceeded’.
He also considers that Purplebricks’ own forecast of annual EBITDA of £10.6 million will actually hit £11 million this year.
His interview concludes: ‘I think there’s great prospects for them’.
You can read the full article here and make up your own mind.
Comments (10)
*Well known, but misunderstood. ”
Who’s fault is that? An endless supply of other peoples money but no message. Just a series of banal ads that created awareness and little in the way of engagement. Aptly evidenced by the” 30% brand conversation ” stat – the message wasn’t sharp enough and the local expert couldn’t better convince and convert.
Zeus in their initial launch of Bricks on the stock market in 2015 forecasted 100k instructions by 2020
They have fallen well short of that so you can take the forecasting with a hefty pinch of salt Instruction levels have plateaued
The share price is less today than in 2015 although market capitlisation has increased due to more capital injections by investors and investors have not received one penny piece in dividends.
Lettings has failed yet they still keep it on.
Plenty of upheaval at Purple HQ with high profile departures and unsavoury stories circulating .Deadwood rising.
Recent hires include new marketing man from Just Eat where he says they are going to concentrate more locally but they said that from Day 1.
My nearest LPE hired 15 months ago is now 60 miles away
New hire Beckwith the mergers&acquistions man must be eager to spend the £60m upping up inventory .
History has taught us that is not likely to work out well
I’m no fan of Purplebricks but the degree of cynicism shown in your headline should be tempered by the number of positive stories about OnTheMarket that you run (I’ve just checked your archive), bearing in mind it is your below-the-masthead advertiser (and therefore your financial supporter). You have the same degree of interest in OTM’s success as you imply the adviser does in Purplebricks. An essential in fair journalism is openness and attaching yourself to one of your advertisers while being less than enthusiastic about one of its rivals is not the open approach required.
I agree that they are ‘misunderstood’. The public actually ‘misunderstood’ that they would ‘save money’ by using PurpleBricks but this is often not the case, £18M lost in 2019 by vendors suckered into the wrong decision of using PB only to then have to change to decent agents and pay a second fee! Ahh CONmisery!
His interview concludes: ‘I think there’s great prospects for them’.
History contradicts!
“Savage says that Zeus has been recording Purplebricks’ level of instructions on Zoopla since the time of the IPO and says that the data puts Zeus, and by extension investors, in a position where they, ‘can be very confident about their current trading.’ ”
Should Zoopla be worried about this?
Passive intermediary listing firms who claim to offer savings on agency fees have got a real battle on thir hands, they are not local to 4 out of 5 activity area each rep is attempting to cover.
Unlike Ewemove who are estate agents who concentrate on a local area, plonking property on the portals for £900 more than firms like Doorsteps puts Purplebricks in a no-man’s land between proper estate agency and FSBO.
While it was new and riding high on sheep investors fearing missing out disruption was a bubble. Now the public know that the claimed <1% saving on fees achieves a completion price significantly below what agency achieves (5%; credit The Advisory) and that spending £1000 on a listing has only a heads or tails chance of a sale it is going to take a very silver tongue or sustained trading performance to to convince people ‘list it and leave it’ agency is a go.
It’s gross profitability is not 60%, if you look at its annual accounts it states it makes that margin then adds in other costs and the actual profit and loss comes in at a minus figure for every year. Purplebricks profit and loss since in last five years, 2016 £11.9M loss, 2017 £3.01M loss, 2018 £30.08M loss, 2019 £54.9M loss and in 2020 – up to 30th of April they lost £19.2M. In 2020 they had revenue of £111.1M but still made that £19.2M loss, so running cost was £130.3M – or a cash burn of £10.85M a month. It will be interesting to see if in the 2021 end of year accounts it is another negative figure, even if it makes an 11M gross profit is that an excellent return on a 110M plus turn over? If you then realise that they generate typically £18M a year from properties that are withdrawn from the market ‘unsold’ – the headline revenue rate is really a £7M loss. Also its revenue seems to be going backwards as in 2019 it generated £113.M and only £111.1M in year ending April 2020. If this stays static and it burns £20M a year more than it generates, how much runway has it left. Also, if they pivot their model and go down the no-sale, no fee model, that is £18M of inward revenue a year that will be hard to swallow, as that is the typical figure that unsold listings generate. As to having 70M in the bank as though that is some huge war chest, in a single year it burnt through more than £132M, a stockplie of cash that was mostly due to Axel Springer ‘buying shares’ which within a year halved in value.
sounds like the RICS
Describing a firm as “misunderstood” is one way of explaining why their forecasted market share is very low compared with the high level of investment.
I’m sure investors will think of other ways to describe it.