Is Purplebricks (PURP) now broken?

Not too surprised by today’s update from online estate agent Purplebricks (PURP):

“Going forward, uncertainty remains regarding the imbalance of supply and demand in the housing market and given the disruption caused by the business transformation, we expect this dynamic to continue into the second half of the financial year, impacting new instructions for the full year. The cost guidance provided with the Group’s update on 10 August 2021 remains unchanged, and therefore adjusted EBITDA is expected to be below previous guidance.

I reviewed the company for SharePad and could not get comfortable with what should have been basic KPI reporting. In particular, the exact number of LPEs (‘local property experts’) was hard to assess – which did not sit right for a business where revenue is almost entirely generated by instructions won by LPEs.

PURP cites the stamp-duty holiday for lower instructions:

“After an exceptionally strong period for the UK housing market in FY2021, buoyed by the stamp duty holiday, the six-month period to 31 October 2021 has been more challenging. New instructions have slowed significantly in recent months, given continued strong demand across the housing market is not being met by sufficient supply of instructions. This imbalance has resulted in new instructions coming to market being approximately 23% below the comparative period last year.”

Looks as if PURP has performed worse than the market (down 23%). PURP’s instructions are down 38%:

“Given the supply and demand imbalance in the market and the disruption caused by the business transformation, we expect to report a reduction in instructions for the six-month period to c. 22,000 (H1 2021: 35,387)”

Underperforming the market looks bad as PURP had just changed its approach by introducing different pricing, money-back guarantees and switching the LPEs from self-employed to employed. The risk now is the new model has simply not worked and the business is left broken.

PURP revealed the switch to employed agents during August, but no mention of slowing instructions was then mentioned. Today’s statement mentions the instruction reduction occurring during “recent months”, so another risk is the current monthly instruction run-rate is less than the 3.67k (22,000/6) implied today.

The cash position is not great:

“Our cash position as at 31 October 2021 was approximately £58m (31 October 2020: £75.8m)… We expect the cash position to stabilise in the second half of the year.”

Cash was £74m at the preceding year-end, so £16m was burned during this H1. Exceptional ‘transition’ costs were said in August to be £3-4m, so underlying cash burn was perhaps £12-13m.

How cash will “stabilise” during H2 is unclear, unless i) instructions recover strongly, or ii) costs are cut, which might be hard to achieve when the LPEs are becoming employees with all the extra expenses employees require.

No surprise in hindsight the finance director decided to leave the other week. His successor offers “strong experience in strategic planning, execution and effective delivery of all aspects of the financial management of a business.

The new FD’s CV perhaps reflects the real problem with PURP. The board is full of IT experts and strategic planners, but offers no hands-on experience of estate agency to devise a workable business plan.

Maynard

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Direct experience of Purplebricks in a slow market 4-5 years ago selling my m-in-l’s house was not impressive. The agent did not even do the job of handing over the keys to the buyer and did nothing to oversee the progress of the conveyancing. In fact he tended to ask us for updates

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