Audio Note: Purplebricks – New team: new strategy

25. Purplebricks

9 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.

Listen to the audio note below, and read the full research here.

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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  • new product was launched and has now been withdrawn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.