Purplebricks Group PLC (LON:PURP) is the topic of conversation when Zeus Capital’s Research Director Robin Savage caught up with DirectorsTalk for an exclusive interview
Q1: Purplebricks’ AGM statement, released this morning, says it’s made a strong start to the current financial year and trading in the UK and Australia remains on course to meet full year guidance, provided at the Final results in June, with revenues of £80 million for the UK and £12 million for Australia. What do you think are the key points there?
A1: The trading statement provides explicit commentary on the progress that’s been made in the past three months. In the UK, there’s been a 19% growth in the last 3 months in Local Property Experts, the number has increased to 640 and the revenues are probably more than double that for the same period last year.
In Australia, growth in Local Property Experts over the past 3 months is 30%, they’ve now got over 100 and revenues will be many times ahead of last year.
If anyone wants to check this, they can check it on a regular basis, you just go on to the company’s website and you can see the individual Local Property Experts, you can count them for yourselves.
In the US, the company is ahead of plan and they are very encouraged by the initial response. They say the website visits and valuation booked exceeded both the UK and Australia at the same period of their development and they received their first buy-side mandate soon after the launch went live earlier this month.
These statements are further substantiated by my analysis of the data which is available on the internet and the statement also revealed that the Group had net cash of £65 million at the end of August 2017. So, it’s fully funded through to the development of all their new businesses.
Q2: Now, there are many vocal critics of Purplebricks, what’s your view?
A2: Well, the company is growing fast and this growth has been achieved at the cost of its competitors so the competitors are not terribly happy.
The UK business became profitable in the Summer of 2016, just over 24 months after its launch and it’s now the largest UK estate agent by numbers of property on Rightmove and is 7 months ahead of our forecast in terms of Local Property Expert recruitment. This is good preparation for the Spring housing market for 2018 and I suspect it’s going to signal increased competitive conditions in 2018.
Australia is on track to become profitable in late 2018, which is only 15 months after its launch so it’s developing extremely fast and the US business units are developing faster than Australia so the Group is growing fast.
The customer experience is overwhelmingly positive, as evidenced by the company’s Net Promoter Score of +80. Although there may be the odd detractor who has difficulty selling their house for all sorts of particular reasons, there are considerably more happy customers than there are unhappy customers.
Q3: Purplebricks Group’s shares are down 20% over the past 2 months but over the past 6 months they’re up 30%. Is this a good time to invest in the company’s shares?
A3: To value the company, investors should first recognise that it is well capitalised with £65 million of net cash at the end of August and in trying to set a value for the company I think there are three distinct parts, the UK business, there’s the Australia business and there’s the US business.
So, the UK business, it’s grown very fast, it’s profitably and the growth is clearly self-funding. Last year the EBITDA for the UK business was £1.5 million, this year it should make about £15 million EBITDA, next year around about £30 million and the year after, £45 million. So, at ten times EBITDA just to keep the maths simple, this is a valuation of £450 million which is £1.66 a share.
Australia’s on track to breakeven this time next year and it’ll be a similar size in value, in my view, to the UK business because the revenues per instruction are more than twice the UK. So, there are around half the number of properties in the market so at full scale it’ll be a smaller business but more profitability so therefore, in terms of value, it’ll be a similar size.
So, if you put together the UK and Australia business together, you get around about £3.22 which leaves 55p for the US business. Clearly the USA is a much larger market than the UK and Australia and also their revenue per instruction is considerably more than either the UK or Australia.
So, I think that this is probably are very interesting entry level because, as you said, the shares are significantly below their last 2 months, I think they’re 28% below the August peak value. So, it’s definitely an interesting time to be looking to buy in ahead of the interim results which are going to be published on the 13th December.
