PurpleBricks Group plc (lon:purp)
PurpleBricks – Not As Good As I Had Hoped.

PurpleBricks Group plc Financials

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PurpleBricks Group plc Share Price
Grade:The Green Grade - Shares That I Think Are Oversold..
Title: PurpleBricks – Not As Good As I Had Hoped.
Company: PURP - PurpleBricks Group plc
Share Price Then: 50p
Author: Ian Smith
Date: Mon 03 Aug 2020
Comments: As an estate agent with a year end of 30 April I was hoping for more, possibly too quickly, as we see the end of a disastrous foray into Canada, The USA and Australia leaving the company only operating in the UK.

The recent sale of the Canadian business for approximately £35m means that in mid July the group had £66m in cash so there doesn’t seem to be a need for a share issue unlike so many others that I have been looking at lately but neither was a profit reported.

UK revenue was down 11% to £80m from £90m which seems reasonable considering COVID but it also implies that 2020 wouldn’t have been showing much growth from 2019, which would be in line with the 6 month trading update earlier.

Despite revenue growth Instructions were down from 69,892 to 53,680 which is 23% for the whole year, but worryingly they were down by 15% for the first 10 months of the year.

Revenue per instruction was up by 12% to £1,394 which made up most of the loss of sales, but PurpleBricks proposition is price and nothing else, every price increase puts them closer to other agents.

Generating revenue from optional services such as accompanied visits is obvious to the customer, commissions from introductions less so.

We also seem to see an inflexibility in the Purplebricks model with £20.6m of marketing costs for the £80.5m revenue which is 25%.

The last two month of the year brought in around £3.3m a month compared to £7.4m per month for the first 10 months of the year but marketing dropped to £0.75m per month from £1.9m per month for the same period.

Both periods have a revenue to marketing ratio pretty close to 4:1, suggesting that people who want to sell probably know about PurpleBricks and just need reminding.

Supporting this argument, in 2019 £26.7m was spent on marketing nearly £6m more than 2020, roughly a 25% reduction in marketing in 2020 saw a reduction in the number of instructions somewhere between 15% and 23%.

There is a lot of uncertainty but it seems that the cost per instruction has been around £350-£400 over the last 2 years.

The company claims a record level of instructions of over 7,000 homes in July which seems positive which would equate to 84,000 over 12 months, but allowing for some sales delayed by house sales being discouraged by COVID and a quieter few months around Christmas sales are looking around the same as this year.

So is the honeymoon period over for Purplebricks? It is not clear why the model failed overseas but seems to be prospering here, overseas the estate agents simply said fine you do what you want, we aren’t changing our prices and customers were happy to pay the higher agent fees.

It may be that overseas agents do more visible or appreciated work in the sales process whereas in the UK the industry is regarded poorly.

At a flat £1k/£1.4k (Outside London/London) there doesn’t seem to be that much room for fee increases and still be massively cheaper in the commodity market.

I’ve just looked on the website and saw this Round the clock support from your dedicated Local Expert. and Here for you 7 days a week, day or night which is PurpleBricks other weakness, overstressing the self employed Local Expert who then can’t deliver the expected level of service.

It is not even necessary, most people would understand an estate agent that says we work midday to 9pm with a messaging service in the morning.

It is a sign of a salesman led company over promising and under delivering.

There was a confusing model of Territory Owner and Local Property Expert which had a bit of MLM ring to it and this was revamped at the start of 2020 and there are far fewer Territory Owners but the LPE still seems to be struggling with the demands placed on him.

As an example I looked at a two bedroom flat, clicked on Street View to be shown the interior of a cookery shop which is presumably below the flat, would you be happy with that as the seller?

The agent is self employed, he needs to get on to head office who probably can’t do much because street view is used on all properties and there isn’t an option to get it to do what is wanted, nobody really owns the problem.

The independent can scream at his web developer and get it fixed or at least not displayed tomorrow.

A lot of the annual report talks about using technology to help delivering greater automation and efficiency but there is the danger of adopting the web standard of “working 90% of the time is good enough.”
This isn’t what people want with a major sale or purchase, they want to speak to someone.

It was disappointing how brief the annual reports was on the financials side.

Looking at the specialist property press there are a number of comments on fora about the lack of industry experience at the top of PurpleBricks and how it was always the plan to create a business and sell up without any long term plan along with how high street agents are brilliant and Purplebricks are terrible.

But the point about service is valid, even if some of the people making it don’t offer it.

For me PurpleBricks are going the wrong way, they need more staff and less automation, people in head office who can credibly act as support for the LPE, so he has to work hard but only reasonably hard.

Although it has dropped out of the news, we have BrExit approaching and who knows what if any deal will appear.

Earlier I thought the group profitability was being dragged down by failed overseas ventures, but while that may be true, it also may be that PurpleBricks is a time expired idea.
Read Count: 525/13168

Buy/No Buy In A Nutshell
NegativesIs a fee regardless of sale model going work if the housing market collapses under COVID induced job losses. The novelty of the brand has worn off and they seem to need continual TV advertising to attract new business.
PositivesA relatively low cost operation with no high street branches and agents on commission only.
Initial Review Price58p
Last Review Price58p
Last Review Date21-Jul-2020
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