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TODAY'S OTHER NEWS

Could Purplebricks go bust? Apparently not, says analyst

An analyst on shares website Motley Fool says Purplebricks is not only in surprisingly strong financial health, but is actually outperforming some longer established bricks-and-mortar agencies.

The Motley Fool analyst in question, Karl Loomes, says his favourite metric for looking at company health is called the Altman Z-Score - a test based on five key financial ratios.

The result is then compared to the average for the sector. Loomes believes a score of 3.0 is adequate and any higher score shows the company is relatively strong. 

So Loomes has calculated the Z-Score for Purplebricks and compared it to two other sector players quoted on the London Stock Exchange - Foxtons Group and Hunters Property. 

The estate agency sector average of Purplebricks, Hunters and Foxtons combined, looked at across all five metrics. was 5.36.

But Purplebricks by itself (to Loomes’ own surprise, it seems) comes out at a strong 9.81. 

Specifically on metric one (working capital) Purplebricks has 0.83 while the sector average is 0.32; on metric two (retained earnings) Purplebricks flunks with a negative score of -0.17 while the sector normal is 0.22.

On earnings before interest and taxes - this is metric three - Purplebricks also flunks, with -0.15 against the sector average of -0.06. But on metric four (the market value of equity) Purplebricks soars with 15.01 against the sector average of 6.92. 

On the fifth and final metric (revenue) Purplebricks is roughly on the sector average with a score of 0.54 against the whole-sector score of 0.72. 

“Needless to say, these results are somewhat surprising - Purplebricks shows a healthy 9.81, even beating the industry average” says Loomes.

But he says his own analysis should be treated with caution for a number of reasons. 

Firstly, the financial report for Purplebricks was for the year ending April 2018 (its latest full year report) and we all know the company has had difficulties since then. 

Secondly, says Loomes: “”When assessing the company against its peers, in some ways it is too unique for an accurate comparison. Traditional estate agents could arguably have a different business model that makes a like-for-like evaluation somewhat skewed.”

And Loomes also concedes that such a large amount of Purplebricks’ positive score comes from the market value of its equity. 

“Even at current share prices, the large number of shares it has in issue is helping to firm up its numbers. Needless to say this is not necessarily the strongest of foundations to keep a company afloat” he notes.

But Loomes believes that Purplebricks’ recent decision to scrap its Australian service and review its US offer mean that it is likely to reduce assets and liabilities. “With these figures, Purplebricks’ Z-Score is still likely to hold above the crucial 3 level” he says.

Loomes accepts that idiosyncrasies of the metrics used by the Z-score but insists that despite all that, “perhaps Purplebricks’ prospects are not quite as dire, for now, as we all may have thought.”

Here’s the Motley Fool story.

  • Simon Shinerock

    This method may work with established companies in mature markets but isn’t really applicable to PB

  • David Baldwin

    Using Old figures to massage a feel good moment for a failing process isn’t good reporting

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    Bye bye PB

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    “..the Titanic is unsinkable”

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    Purely a vehicle for floating on the stocks and selling out. Nothing more, nothing less with recent sell outs proving this to be the case. But who will be left with the baby?

  • Kevin Davidson Hall

    The Listing model is blown and has become a busted flush.

    Only a matter of time before "Investment" in Purple Bricks dries up and it dies or re-invents itself.

    Call me old-fashioned but a business that has never made a profit nor paid a dividend is not my idea of an investment.

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    Where 'metrics' replace common sense. The online-only sector will never scale to the degree required to survive. It's done.

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    Neil Woodford must be relieved, even if he's withdrawn quite a bit recently. Bull or Bear?

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    Funny how profit isn't a key consideration.

  • Andrew Stanton Estate Agency Insights Strategies

    I would suggest that the Motley Fool analyst needs to remember that Purplebricks market capitalisation was 100m not so long ago and is now a third of this at around 325m, the share price is around 99p, down from a high of over 500p, Neil Woodford's Equity investment fund was suspended a fortnight ago and he is now being formally investigated by the regulators.

    PB has never made a profit and has closed much of its overseas operations, and it is possible that Axel Springer may take the company private.

    The reason Woodford is important, is that Purplebricks has been burning through its cash … and normally would look to inject more money by going to fresh investors, but given the shakey position of Woodford, the leaving of Michael Bruce, and the sale of the Bruce clan of all of their shares - as well as Woodford divesting himself as of the same, I do not see anyone wanting to buy shares unless they want to take a controlling interest of the company.

    I think the chap from Motley Fool could do worse than look at the ADVFN share chat, and get a real insight into what dealers and investors think about the financial health of Purplebricks, instead of making up some 'analysis' that says PB is in better health than some agencies who themselves are strapped for cash and could do with a large cash injection to keep them safe from the current difficulties that the property market is facing.


  • Andrew Stanton Estate Agency Insights Strategies

    1000m market capitalisation that should have read, not enough zeros, which is often the case for online agents.

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