25. Purplebricks9 August 2022
In 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.
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- new product was launched and has now been withdrawn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.