Purplebricks’ recent strong share price rise is not a good sign for the agency but an indication that it may be “over-valued, and possibly grossly so” according to a leading City investment column.
Motley Fool contributor G A Chester writes that while it’s true that Purplebricks’ shares hit a multi-year low of 90p in May but has more recently seen a substantial recovery, the controversial agency’s recent trading statement concealed some underlying problems.
“The company trumpeted UK revenue growth of 21 per cent to £90m for the year and an operating profit of £5.3m. However, if you look behind the 12 months figures, you’ll find revenue slumped 13 per cent in the second half, compared with the first half, and the business swung to an H2 operating loss” says Chester.
“I’m not convinced this is entirely down to the current economic and political uncertainty in the UK, because I’ve long questioned the sustainability of the company’s no-sale-still-pay business model” he adds.
Chester’s concern is that the stock market is currently rating Purplebricks as a high-growth stock.
“At a current share price of 120p it’s valued at £368m, or four times revenue … As such, I see Purplebricks as overvalued, and possibly grossly so.”
This is the second investment guidance blow in recent days for Purplebricks.
At the end of last week the agency was downgraded from an ‘overweight’ to a ‘neutral’ rating by investment advisers at JP Morgan Chase & Co.
They set a new target for the share price at 145p, down from its previous target of 186p.
Meanwhile in its annual report for 2019, released over the weekend, Purplebricks discusses its issues over the past year leading it to abandon activities in the United States and Australia, but it pledges dramatic success in the UK and Canada and does not underplay its impact on the domestic market.
In the report's contribution from chief executive Vic Darvey, he says: "Purplebricks has an effective model which is a clear 'category killer' and we remain hugely focused on becoming “the only place customers go to buy, sell and let their homes”. We have an unrivalled value proposition in the marketplace that offers consumers the opportunity to sell their homes for a fair, fixed fee. We are always available, when most high street agents still stick to office hours. Our technology provides complete transparency to the entire buying and selling experience enabling viewings to be booked instantly online and offers to be made and accepted from the palm of your hand around the clock.
"Purplebricks’ revolutionary process of buying and selling has enabled a market-leading position in the UK in terms of the total properties we represent on the market and the speed at which we sell them. We also enjoy significant market share in Quebec. Moving forward, we are fully focused on creating a more dynamic customer experience based on real-time analytics, artificial intelligence and Smart CRM delivering a best-in-class experience. This will enable end-to-end service excellence for customers and greater automation and efficiency for our Local Property Experts."
You can read the full annual report here.