25. Purplebricks
9 August 2022In this audio note, Zeus’ Robin Savage summarises the investment case for Purplebricks.
Purplebricks full year results provides the detail behind its May pre-close update (i.e. 40,141 instructions; £70m revenue; £8.8m EBITDA loss and £43.2m cash) and details Purplebricks’ plan to return to operational cash generation.
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Purplebricks full year results provides the detail behind its May pre-close update
Namely, £70m revenue, £8.8m loss at EBITDA level and £43m net cash
Importantly these results … reveal Purplebricks’ plan to return to operational cash generation.
Key to the plan is growing its financial services.
Current trading:
Purplebricks management revealed it generated 11,000 instructions in its 1Q
This is higher than both its first and final quarters of last year: this is encouraging
What’s Zeus’ view
Last year, was a year of change:
- new product was launched and has now been withdrawn
- costs of sales became fixed rather than variable; and
- senior management changed, when Steve Long joined as CFO; and Helena Marston, became CEO.
Management has already implemented a 20% price rise, cut £13m from its cost base, and is stabilising cash burn.
We see potential for Purplebricks to build its revenue back from £70m last year to £100m by April 2025.
However, deferral accounting will probably result in the EBITDA loss of up to £10m for the current year.
We expect profitability to return in the year to April 2024, which is when we should also get a contribution from the new financial services revenues.
Valuation: 3 points:
1 Purplebricks has £43m of net cash. We view Purplebricks as well capitalised.
2 Purplebricks has spent over £100m on its brand. …. It has high unprompted recognition and is the largest UK estate agent. This is a substantial shareholder asset.
3 Purplebricks’ business model, with fixed costs and five years-experience providing leads to Mortgage Advice Bureau, makes it well positioned to more than triple its revenues from financial services.