Star fund manager praises Purplebricks for its ‘disruptive and competitive business model’

| Marc Shoffman

Investing veteran Neil Woodford has highlighted the importance of Purplebricks to his Patient Capital Trust.

The online agent is in the top ten holdings of Woodford’s investment trust, making up 3.79% of the fund, and he describes it as “well placed to significantly disrupt the UK’s traditional estate agency business model”.

Woodford raised a record £800m when he launched the Patient Capital Trust in 2015, but its latest annual report shows its net asset value declined 4.2% in the year to December 2016.

He has emphasised the fund’s long-term investment approach, and described the part that Purplebricks plays.

Writing in the Patient Capital Trust’s annual report, Woodford, an early investor in Purplebricks, says it is “fast becoming a household name”.

He said: “It is a ‘hybrid’ property agent, combining a simple-to-use online platform with a team of flesh-and-blood agents.

“It operates 24/7 and is well placed to significantly disrupt the UK’s traditional estate agency business model – indeed it is already doing so.

“Its growth revenues increased by 159% for the six months to October 2016 after it sold £2.6bn worth of properties over that period, making it the third largest operator in the market.

“With the strategic and successful launch of its brand in Australia in September, Purplebricks’ disruptive and competitive business model is beginning to demonstrate its international viability and it has recently raised capital to expand into the US in 2017.”

There is no mention of how many properties the online agent has actually sold, but Woodford seems keen to hold on to the shares. His other investments have certainly done less well than Purplebricks.

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24 Comments

  1. Chris Wood
    April 24, 2017 at 08:01

    Great for the investors so far no doubt but, what about the important people, you know, the customers…?

    In my area, 75% of people who paid to list in the past 12 months have failed to exchange. In comparison 62% of people who listed with full-service agents did.

    https://pzwoody.wordpress.com/2017/04/12/purplebricks-what-is-really-going-on/?preview_id=1233&preview_nonce=fe4c64e399

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    1. cyberduck46
      April 24, 2017 at 08:30

      Hi Chris,

       

      My own research of properties listed by PurpleBricks suggests your local area is not typical. Only 62% conversion for full-service Agents? I think you’d be dissapointed if you knew the results of my research.

       

      I was looking at your opening hours the other day. Whilst you’ve been blogging, tweeting, facebooking and contributing to everything posted about PurpleBricks, the LPE’s have been out and about earning instructions for themselves and their shareholders.

       

      I checked Zoopla figures earlier and 38% of all properties listed yesterday were by PurpleBricks. Giving customers what they want with weekend valuations & listings.

       

      Little wonder that some agents listings are down 75% on this time last year is it?

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      1. Mark Walker
        April 24, 2017 at 09:16

        Yeah Chris.  
        All this social media stuff – free advertising, drawing people to your business, engaging with customers – all for free!  It’ll never catch on.

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        1. cyberduck46
          April 24, 2017 at 09:49

          Mark, well it’s obviously not working if you look a little deeper.

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          1. levinyl91
            April 24, 2017 at 12:24

            Mark, its not working pal. 

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      2. PeeBee
        April 24, 2017 at 09:44

        Welcome to the rather select #Bunnyboiler Club, Chris!

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  2. levinyl91
    April 24, 2017 at 12:23

    Purple bricks who? These online agents dont worry me in the slightest! Poor profits, unhappy investors – wont be around for long!

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    1. cyberduck46
      April 24, 2017 at 12:51

      Doesn’t the year on year instruction growth and the fact that experienced investors are desperate to get a piece of the action concern you?
       
      4330 instructions in 2015, rising to 19200 in 2016. Estimated for 41000 and looking good for at least 38000 this year.
       
       

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      1. Mark Walker
        April 24, 2017 at 13:30

        No.

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        1. cyberduck46
          April 24, 2017 at 13:38

          OK, what about estimates of 100,000 instructions (approx 7% market share) by 2020?

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          1. AgentV
            April 24, 2017 at 15:06

            Yes but up to this point they have had very little competition in their sector. A much better model is around the corner, undoubtably being developed as we speak. A model based on cheapness and corresponding low service is never likely to succeed in the long run.

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          2. PeeBee
            April 24, 2017 at 16:38

            “…what about estimates of 100,000 instructions (approx 7% market share) by 2020?”
            What about them?
            Show me one “estimate” or “prediction” from a ‘disruptor’ in the last 5 years that has been anywhere near the mark.
            Just one.

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            1. cyberduck46
              April 26, 2017 at 12:12

              These estimates were from broker Hardman & Co, not the company themselves.
               
              Broker estimates are very rarely bang on and are periodically updated. We’ll have to wait a few weeks to see what their 2017 estimates were like. After the unexpected Brexit decision, estimates were downgraded in September.
               
              I’m fairly confident Hardman & Co. will be within plus or minus 10% which is pretty impressive and gives more credibility to their longer term estimates.

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              1. PeeBee
                April 26, 2017 at 12:44

                So – are you saying that PBs listings figures for 2020 will be between 90,000 and 110,000?

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                1. cyberduck46
                  April 26, 2017 at 15:20

                  Let’s see whether the short term estimate is close (to end of April 2017). If they get that right then that is pretty impressive and then perhaps we can start believeing the ones further forward.
                   
                  You’d have to admit that 4330 to 19200 to 38000 would be pretty staggering growth. I bet you if we look back we won’t find too many Estate Agents predicting those sort of figures.
                   
                  Incidentally, Peel Hunt have just done an analysis of their business and are also very positive:

                  “It is the clear market leader amongst the online/hybrid agents with market share now over 70% and it continues to take share from the traditional high street agents. We believe it will be the largest agent in the UK within the next 12 to 24 months.”

                  and

                  “The UK business is now profitable on a monthly run rate and will see a big drop through to profits from increased revenue/market share. From a breakeven operating profit in full-year 2017 we forecast margins to increase to 28 per cent in FY19 with operating profits of £24m.”

                   
                   

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                  1. PeeBee
                    April 27, 2017 at 09:02

                    “You’d have to admit that 4330 to 19200 to 38000 would be pretty staggering growth. I bet you if we look back we won’t find too many Estate Agents predicting those sort of figures.”

                    High street Agency opens – first year, say 20 instructions.  Year 2 – 60 instructions.  Year 3 – let’s say 90 as the year hasn’t ended yet.  That’s a fivefold increase.  Obviously not as “staggering” as your example – but that’s one office… on one high street… with only so many chimneypots to service. 

                    Oh – and I doubt that the owner of my example Agency will have increased his staff levels by a factor of three or four in those two years. OR spent squillions on TV advertising to buy his next listing.

                    So let’s look at it another way, shall we?

                    What was their costs to achieve those 4330 listings against the costs incurred to achieve a yet undetermined number of listings.  Use your 38,000 if you like – I’m sure it won’t make much difference in the grand scale of things – I’ll predict that  their spend ratio FAR outclasses anything you perceive as “staggering growth”…

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                    1. cyberduck46
                      April 28, 2017 at 07:57

                      >I’ll predict that  their spend ratio FAR outclasses anything you perceive as “staggering growth”
                       
                      Well that’s the $64,000 question which has supposedly already been answered in the 6 month results released in December and will be looked at again when the results come out at the end of June and hopefully on 4th May when they release a trading update.
                       
                      This is precisely the whole point of their business model. Fixed costs (web site & marketing) being roughly the same year on year but revenue increases as the number of LPE’s and market share grows.
                       
                      Take a look at Mike Delprete’s article on scaling http://www.mikedp.com/articles/2016/12/5/purplebricks-results-show-promising-trends
                       
                      For the first half of 2016 UK admin & marketing costs the same as in 2015 at £10.4m. Revenue increased from £7.2M to £18.3M.
                       
                      This is what differentiates the PurpleBricks model from that of the traditional estate agent and why the share price took off after the December half year results. The theory is, yes a small agency will have fixed costs until it gets bigger but PurpleBricks will have roughly the same fixed costs as it gets bigger.
                       
                      There are still questions to be answered but from what I can see all analysts, bar one, are backing it.
                       
                      PurpleBricks are also very excited by the growth of their data sales unit “We are now able to increase our revenue generating opportunities from data and, as our people develop and we place them into dedicated product and service streams, we expect to see the unit make a significant financial contribution.”
                       
                       
                       
                       
                       
                       
                       

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                    2. PeeBee
                      April 28, 2017 at 09:25

                      “For the first half of 2016…Revenue increased…to £18.3M.”

                      SO…

                      …what you are saying there is that in the first half of 2016, purplebricks listed a minimum of 20333 properties – is that correct?

                      “PurpleBricks are also very excited by the growth of their data sales unit”

                      SO…

                      …what you are saying is that PB look more to making money out of PEOPLE (plain-speak translation of the word ‘data’) than they do out of what is (according to the beliefs of those very PEOPLE) their sole purpose – that of matching buyers and tenants to properties.

                      Thanks for that clarification.

                      Not that shareholders give a fuppenny about how companies make their accounts say what they say…

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                    3. cyberduck46
                      April 29, 2017 at 13:55

                      Purplebricks said their average revenue per customer was £1000. So 18300 listings unless I’m mistaken.
                       
                      H2 includes November & December which I think are typically quiet months (but correct me if I’m wrong) and then January to April which I think are typically busy months. Looking for about 20,000 listings in H2. Just an estimate. More chance of being wrong than right. 
                       
                      All they have said is they expect the data sales unit to make a significant contribution, not that they expect it to be more profitable than any other are of the business.
                       
                      It sounds to me like you are in a different business than most of the estate agents I’ve dealt with. They are only interested in matching buyers to properties on their own books.
                       
                      It sounds like you will look at a buyers requirement and match them to another agents property if that is better for them than the one they are enquiring about. Is that right?

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                    4. PeeBee
                      April 30, 2017 at 12:30

                      “Purplebricks said their average revenue per customer was £1000. So 18300 listings unless I’m mistaken.”
                      They ACTUALLY said their average revenue was £1080 per customer.  
                      Funny, this – on another thread you use the figure £901 for the same argument.  You appear confused over this issue.
                      Kind of explains the final two paragraphs of your post…
                       
                       

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                    5. cyberduck46
                      May 2, 2017 at 06:44

                      PeeBee,
                       
                      They ACTUALLY state in the interim report for this finacial year (2017) that their “Average revenue per customer up 20.6% to £1,000” but who cares about £8 when we’re looking at estimates? 
                       
                      You will probably find I was referring to the 2016 financial year if I was quoting £901. “Average revenue per instruction was £901 (2015:£703)”
                       
                      So come on, you are trying to criticise PB for trying to make a profit for their shareholders. Answer my questions above. 
                       
                       
                      In the end you might try and suggest that some Estate Agents’ involvement in the industry is purely altruistic and they are serving the community by “matching buyers to properties” and that making money out of PEOPLE is just simply a side effect of their god given cause but I think that is somewhat disingenuous 🙂 If that was the case they’d pass on business to their competitors if they thought they had a more suitable property. 🙂

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  3. Woodentop
    April 24, 2017 at 14:44

    Says a lot about a person who goes out of his way to praise a company that wants to put other business’s out of business, make people unemployed and knock on effort to their suppliers and families. There was a time that such behaviour would lead to his customers distancing themselves from such poor a poor attitude. I hope they take note, for one day they may be on the receiving end of such disgraceful behaviour.

     

     I also note the latest PB TV commercial is a gross misrepresentation of the service they offer compared to the High Street, claiming they are no different.

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    1. Beano
      April 25, 2017 at 13:40

      Can’t say I agree with your principle entirely Woodentop, we are after all in a capitalist economy, and one lay off will often mean a new opportunity for someone else. That said I refuse to use firms like Uber and the like and will generally seek out traditional and or local providers if its not going to inconvenience me or cost an arm and a leg.

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      1. Woodentop
        April 25, 2017 at 17:25

        Call me old fashioned, its a generation thing that I once heard my Grandfather comment to me and as we all grow older we adopt the same attitude with our grandchildren. Praise for those that work hard and reap the rewards, is often turned on its head, for todays rewards and stuff tomorrow, while taking delight in mugging others for thier own gain. Just not cricket.

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