PurpleBricks Group plc (lon:purp)
Purple Bricks – Good News On Overseas Operations

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PurpleBricks Group plc Share Price
Grade:The Green Grade - Shares That I Think Are Oversold..
Title: Purple Bricks – Good News On Overseas Operations
Company: PURP - PurpleBricks Group plc
Share Price Then: 118p
Author: Ian Smith
Date: Wed 08 May 2019
Comments: When I last looked at Purple Bricks I had a bit of a downer on them as I felt that expansion overseas was taking them into markets that they didn’t really understand, was costing them money and was taking attention away from developing the UK business.

So today’s news that they are withdrawing from Australia and scaling back and possibly shutting up shop in the USA as well was great news.

For some reason the market seems to have disagreed and the share price has dropped nearly 12%.

The “pay regardless of sale” model operated in the UK will always create some unhappy customers especially with a bad agent but the Trust Pilot reviews had some complaints but the number wasn’t worryingly high.

As Purple Bricks uses self employed agents the customer’s experience is very heavily affected by that one agent.

I believe that management needs to be monitoring agents very carefully when using this type of model including the commissions being paid, if the agent’s earnings are insufficient then the service offered will suffer.

With an online model there is an expectation that the agent will be available to meet potential clients any time of the day which makes for a long working day which needs to be rewarded.

This is important as a common theme amongst the complaints was the original agent had left and the new one wasn’t too interested, not really surprising as he had no income from that client.

Importantly it seems that PB sees the agent as an order closer but the customer sees him as their long term contact.

This leaves us with the question of can the company offer an acceptable service for the price it charges?

The cost of acquiring customers seems destined to remain high and the temptation to reduce agent commissions to improve margins may prove too great.

The two big dangers that I see for the company are;

The Inland Revenue declaring the Local Property Experts employees.

The bricks and motor estate agents also offering the same pricing model, my understanding of the market seems to suggest that outside of London it would need to about twice the Purple Bricks price at around £2k.
Read Count: 391/7058

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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