An investment adviser says Purplebricks remains “far too risky” for investors even though it now has “a fighting chance of survival”.
Rodney Hobson, a columnist for the financial and data business Morningstar, says the hybrid agency has confounded his expectations by ditching all of its overseas activities to concentrate on its UK core market - something which just a year ago seemed unlikely.
“My main concern was the alarming rate at which Purplebricks was burning cash as it attempted to expand overseas before properly securing its future in its home territory of the UK. Sense has prevailed” he writes.
He continues: “At least Purplebricks now has a fighting chance of survival, especially if pent-up demand kickstarts the housing market. While job losses may mean more forced sales, this could work in favour of Purplebricks, which charges less than traditional estate agents.”
Hobson believes the new fee structure to be outlined in the autumn - when Purplebricks is expected to levy a lower upfront fee but a higher charge on completion - is another optimistic sign for the agency’s future.
But Hobson cautions that while Purplebricks continues to run at a loss, and although it has no bank borrowings and stands a far better chance as a UK-only operation, “it remains far too risky for me to consider as an investment.”
He concludes: “I still fear that a rights issue will be necessary at some point. I would not want to be a shareholder deciding whether to risk more cash with no genuine signs of sustainable profits.”
Last week the company revealed its trading statement covering the first half of 2020, reflecting the problems caused by Coronavirus.
There was an operating loss of £9.4m - much higher than the £1.5m loss a year earlier.
Revenue plummeted 10.7 per cent to £80.5m.
At the company's financial year end - so before the sale of its Canadian business last month - it had £31m on the balance sheet, compared with £62.8m a year earlier.
The sale of the Canadian business in recent weeks has now contributed £30.6m to the agency’s coffers and the firm says “our exits from the Australian and US markets have allowed us to concentrate on our key operations.”