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Purplebricks: investment website raises questions over its profitability

Investment website The Motley Fool says comparisons between forecast and actual profits reported by Purplebricks suggest the company’s position isn’t - in its words - “entirely rosy.”

Motley Fool is a website on which different investment analysts put forward different opinions about stocks. Over the weekend, the investment analyst G A Chester wrote on the Motley Fool a column entitled “10 Reasons I’d Sell Purplebricks PLC”.

The first two points concerned analyses made by the investment consultancy Hardman & Co in reports issued on December 17 2015 and again just a few weeks ago during September 2017. 

The Motley Fool points out that a private funding brochure to potential investors in 2014 projected a maiden profit of £17.6m for 2015 followed by £24.9m for 2016. 

The Fool then says: “By the time it floated in December 2015, a maiden profit was not forecast until fiscal 2017: a research note (17/12/2015) issued by Hardman & Co (paid fees by Purplebricks, so presumably not far off the company’s own projection) forecast £8m. Purplebricks posted a pre-tax loss of £6.1m. And even when the cost of entering the Australian market that year is stripped out, it still missed the £8m profit forecast by a mile. The latest from Hardman (September 2017) is for a maiden profit of £7m in 2019.”

The Motley Fool then claims that Purplebricks also fell short of Hardman’s December 2015 projection of £49.2m revenue for 2017. 

“The miss was £6m, excluding Australian revenue, which wasn’t in view in December 2015. The company has undoubtedly shaken up the UK market, but do revenue and profit projection misses (plus the timing of the move into Australia, and recently the US) suggest all isn’t entirely rosy?” asks Motley Fool author G A Chester. 

A Purplebricks spokesman told Estate Agent Today on Sunday evening: ”Purplebricks has taken the UK market by storm in a little over three years and is aiming to replicate this success in Australia and the US.  This increased ambition necessitates increased investment in people, infrastructure and marketing, which is reflected in updated budgets. Purplebricks continues to trade strongly, in stark contrast to traditional peers, and as set out in our latest trading statement is on-course to meet full year expectations. Purplebricks continues to deliver for shareholders and year-to-date has been one of the strongest share price performers." 

The rest of the Motley Fool article cites queries over the instruction-to-completion ratio, controversies over online reviews, and competition from other agencies as possible reasons not to invest in Purplebricks.

In another paragraph, Chester says of the hybrid agency: “Disingenuousness, casual breaches of minor rules and regulations, and other arguably de minimis matters of integrity can be symptomatic of a deeper malaise in the culture of a company. Purplebricks concerns me. One of too many examples for my liking: AIM companies are required to update their shares in issue and major shareholders on their website at least every six months. Currently (29/9/17, 15:30), Purplebricks hasn’t updated the information since 17 December 2015.”

Chester concludes: “For these and other reasons, it’s a sell for me. For keen holders, it may be prudent to ‘dance near the door’. Am I making a big mistake?

Of course, I could be making a big mistake with Purplebricks. But is missing out on a possible opportunity, due to caution, among the most common wealth-sapping missteps an investor can make?”

  • Simon shinerock

    Have you ever read a great book only to be disappointed by the ending? Some ideas come up again and again, they sound great in theory but they always have the same disappointing ending, selling privately and variations thereof is one of these ideas. Believing PB will work is like reading one of those books for the second time and hoping for a different ending, it’s not going to happen.

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    PB's PR machine is the same as the US Military's wanting to send more soldiers to Afghanistan so that they 'can keep on winning'.

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    Simon is right, the fundamental business model of PB has been around for decades, what is different is the huge amount of investers money being thrown at it to achieve traction. Without that very high level of funding the tv advertising would not be possible and their visibility would evaporate away. The roots laid by PB may be wide but they certainly are not deep. As regards listing to sale conversion rate, for PB that is irrelavent as their are all about obtaining their fee for the listing only and ultimately capitalising on their share price . A sustained buyers market where sellers are far more resistant to paying a substantial upfront listing fees as well as a investor sentiment turning negative could well create serious problems for PB. Further in such circumstances I dont envisage the self employed local property experts hanging around either.

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