What’s new:
Purplebricks’ Plc (LON:PURP) update for the 6 months ended 31 October 2018 confirms:
Purplebricks has over £100m net cash prior to the £11.1m Homeday investment;
Purplebricks is on track to meet full year revenue guidance of £165m to £185m.
In the UK, Purplebricks has grown its revenue c. 20% YOY. Double-digit growth of instructions has combined with increasing average revenue per instruction to deliver sustainable growth. Despite increased competition & total category media spend, Purplebricks has maintained its leading market position with 74% share of the UK online/hybrid market, and brand awareness (97% aided and 48% unaided).
In the US, Purplebricks has launched in 7 states & trained c. 140: Local Real Estate Experts (LREEs) and sales consultants. In California, prompted brand awareness has reached 44%, which is ahead of the UK after 12 months.
In Australia, Purplebricks has improved its customer proposition in response to challenging tough markets. Consequently, conversion from valuation to instruction has improved, increasing instructions 35%: October on September 2018.
In Canada, in July 2018, Purplebricks acquired the leading hybrid agency Duproprio/ Comfree. The Group is supporting local management to drive further growth: since acquisition Web visits in Quebec were 5.4m and in the English provinces were over 2m, suggesting further expansion beyond Quebec is likely.
In Germany, in October 2018, Purplebricks invested £11.1m in a JV with Axel Springer, to take an initial minority investment in Homeday.
Michael Bruce, Group CEO of Purplebricks, said: “[In tough markets] Purplebricks continues to grow and win market share. …. with the best known brand in the sector, its flexible business model and the strong balance sheet, Purplebricks is well placed to further strengthen its leading UK position and replicate this success overseas.”
Zeus view:
Management has reiterated revenue guidance and confirmed that net cash is >£100m.
As importantly, the statement confirms Purplebricks has made good progress in establishing its brand in the US; there has been a positive response to action taken.
Interim results on 13 December will provide a solid base on which to review the investment in Australia and North America, as well as consider the growth of Canada and profitable growth in the UK. As there is no change in management’s revenue guidance, we leave our forecasts unchanged.
Valuation:
At 181p a Purplebricks share, we see a sum of the parts valuation with the largest component being the value of the UK hybrid agent (FY(Apr)19e revenue: £100.0m; gross profit £56.5m; adj PBT after increased media spend of £9.5m); the investment in the leading profitable Canadian hybrid agent being a multiple of the 10p per share investment, and net cash of over 33p, which is sufficient to fund the development of Purplebricks Australia and Purplebricks USA through to profitability.
