PurpleBricks Group plc (lon:purp)
Purple Bricks – Have They Peaked?

PurpleBricks Group plc Financials

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PurpleBricks Group plc Share Price
Grade:The Green Grade - Shares That I Think Are Oversold..
Title: Purple Bricks – Have They Peaked?
Company: PURP - PurpleBricks Group plc
Share Price Then: 125p
Author: Ian Smith
Date: Fri 22 Feb 2019
Comments: Purple Bricks suffered a big drop of around 30% which seems related to the trading update reporting a 20%ish drop in expected revenue.

Going to their web site one of the first sentences is “We provide a full estate agency service at a low cost because we've removed the expensive offices and fleets of cars that you see with traditional agents.”

For me the big question is can you actually do this?

Are the offices necessary and as an estate agent needs a car is the cost simply being transferred from Purple Bricks liabilites into the fees paid to their Local Expert?

The final question is the model, certainly in the UK with self employed agents, can they deliver the quality of service?

In the UK it seems that the business is heavily reliant on TV advertising and word of mouth, massive TV advertising is of course contradictory to a low cost model.

Currently the UK operation seems to be profitable but this drop may alter that and may be an indication that the growth period is over, whether this means a steady level of business or is the start of decreasing business in unclear.

In the UK the fee for using Purple Bricks is payable regardless of whether or not the property is sold, in the USA it paid upon sale and in Australia it is half for listing and half upon sale.

As numbers, in the UK the fees are £899 (£1199 with visits), Australia $8,800 in total (roughly £4,400) and the USA seems to have varying fees per area the website gave me around $5000 in Los Angles 90001.

In the UK the average estate agents fee is around 1.4%.

This overseas expansion concerns me as property sales are managed quite differently in different countries although complaining about estate agent fees is probably a world wide phenomenon.

My concern is that the last interim report, had a £10million loss on £7million revenue in Australia and a £20million loss on £6million revenue in the USA.

This could simply reflect the cost of starting up or it could be the cost of opening up a business in a market that is poorly understood and will be closed without ever making a profit.

In all three markets Purple Bricks is noticeably cheaper than the traditional model once you get away from the lower priced housing but as property price goes up so do buyer and seller expectations.

Considering these expectations and the incentives for Purple Bricks to ensure a sale, in the UK all fees are paid up front, in Australia it is a 50%/50% split and in the USA 100% on sale..

The big upside that makes me consider the business is that the company has no debt and has around £70million in cash.
Read Count: 327/6044

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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