In advance of attending the 51st Annual NAREE Real Estate Journalism Conference in Denver on June 14 – 17, Purplebricks Group plc (LON: PURP) announced today that it will commence its ambitious United States expansion, identifying California as the first launch state, later this year.
Purplebricks is targeting California for its US launch due to the state’s strong housing and economic fundamentals. According to data compiled by the California Association of REALTORS® and other publicly available information pertaining to US homes sales, California ranks #1 in transactions nationally with total sales commissions exceeding $11.5 billion. As it builds a strong brand presence in California, Purplebricks intends to expand into other key US states via a controlled roll-out strategy with a plan to accelerate coverage, as required. Purplebricks has recruited Eric Eckardt, a real estate technology veteran, to serve as its US CEO and position the Company for long-term success in the market.
In preparation for its US launch, Purplebricks will soon begin engaging hundreds of highly experienced, full-time real estate agents across California who demonstrate extensive local market knowledge and a passion for customer service. Known as Local Real Estate Experts, Purplebricks’ recruits will undergo extensive training that covers all aspects of the Purplebricks platform to ensure the highest servicing standards.
Importantly, Purplebricks’ Local Real Estate Experts will have the opportunity to earn more and work more effectively, benefiting from the combination of territorial exclusivity determined by zip code, lead generation from high impact TV-led marketing and technology that frees them up to spend more time with customers. Purplebricks will offer its Local Real Estate Experts sell-side and buy-side opportunities.
Commenting on the news, Purplebricks Group Plc US CEO Eric Eckardt, said: “Purplebricks is launching in the US, with a distinct offering, which aims to offer a better deal for customers and a compelling opportunity for highly skilled, experienced Local Real Estate Experts. Our plans are progressing well and we remain on-course to launch in the second half of 2017.”
Michael Bruce, Founder and Group CEO of Purplebricks, said: “We are absolutely delighted to be moving forward at pace with plans for what will be an exciting US launch. We will be giving sellers and buyers a unique and seamless experience. We are looking to recruit the very best real estate agents who want to be highly successful and who want to spend their time helping and supporting customers rather than prospecting for leads. We will provide them with a stimulating customer centric culture and market leading support to help them build scalable, profitable businesses.”
Zeus Capital’ view
Our May 2017 research observed that the launch of Purplebricks in the USA, in our opinion, enables the Group to continue growing its LPEs (i.e. fee generators) for the next few years at a high rate.
We have reproduced part of our May 2017 analysis in this research note. We have made no changes to our forecasts.
Today’s statement confirms Purplebricks’ US plans are progressing “at pace”. We expect full year results on 29 June to provide evidence of sustainable profitable growth in the UK and good progress in Australia.
Valuation
The launch of Purplebricks Australia and USA reinforces our view that investors should value Purplebricks on a revenue multiple reflecting its growth and business model. The number of LPEs could be used as a proxy for “revenue run-rate”.
† For fast growing businesses with clear & transparent business models, investors should consider the ratio of equity market value less cash to revenues. We see a glide path to a valuation in 2020 when a 6x to 8x revenue multiple is consistent with a PER of 19x to 25x.
* †† A 2020 PER of 19x to 25x is consistent with an EV/LPE of 0.6x to 0.8x.
