Purplebricks Group Plc Strategic investment & update – Zeus Capital

Purplebricks Group Plc
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Purplebricks Group Plc (LON:PURP) trading update, prior to its year end 30 April, confirms that adverse weather in February and March will result in Group revenues being c 5% below consensus and reveals a £125m strategic investment by Alex Springer.

Axel Springer, Europe’s leading digital publisher and operator of real estate portals such as SeLoger, Immowelt and Immoweb, has agreed to invest £125m in Purplebricks shares

£100m in 27.8m new shares acquired at 360p;

£25m in existing shares acquired at 360p;

Axel Springer will own 11.5% of Purplebricks’ enlarged share capital;

Dr Andreas Wiele, an executive board member of Axel Springer and President Classifieds Media, will join Purplebricks’ Board.

Current trading

Group revenues will be c. 5% below consensus (i.e. 95% of £98m), but still up c 100% YoY;

Instructions for the UK estate Agency industry are down 17% in March; however, in the last 10 days Purplebricks’ UK instruction levels have reached record run rate of c7,000 a month;

Purplebricks Australia & US are on track.

The £100m will augment the Company’s existing cash resources of £51.7m (as at 28 February 2018) and allow its strategic plans (e.g. an accelerated rollout in the US, Entry into new geographic markets and fund technological innovation and expansion of Purplebricks’ service offering.”

Three new independent non-executive directors, Adrian Blair (Global COO of Just Eat plc), Simon Downing (founder and Executive chairman of Civica Group Limited a leading international provider of specialist software and digital solutions) and Mike Wroe (former Group CFO of Just Eat) will replace Nick Discombe and Will Whitehorn who will retire from the Board on or before 30 June 2018.

Zeus’ view: The strategic investment provides increases cash to over £150m. The recent slow trading reduces our FY(Apr)18e revenues by 6% and gross profit by 4.5%. We take this opportunity to increase the investment in the US and other new territories by £35m, ahead of guidance expected at results due on 5 July.

Valuation considerations: In our opinion, EV/revenue provides a sensible valuation guide, given Purplebricks’ business model. Investors will also note that the strategic investment was made at 360p a share.

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