City analyst Anthony Codling, working in conjunction with industry consultant Robert May, has given Purplebricks a damning ‘underperform’ rating.
This morning, Purplebricks issued a statement to the London Stock Exchange strongly contesting the research and providing a trading update saying that last month it agreed sales on over 4,600 properties and took 6,160 instructions – up 66% year on year.
In yesterday’s research note, Codling says Purplebricks shares should be worth 94p, rather than the 453p that they actually closed at yesterday.
Last night, Purplebricks said that Jefferies’ previous analysis had been wrong – and so, it insists, is the latest. This morning’s stock exchange announcement also condemned the research.
Codling was speaking yesterday afternoon at the Guild of Property Professionals conference in London.
His presentation to the agents, who are being offered easyProperty licences, was apparently delivered after markets closed, and entitled “Facts, Fiction and Forecasts”.
It is unclear whether the City might have got wind earlier of what his report might say. Yesterday the Purplebricks share price fell 36.8p (7.51%) according to the London Stock Exchange. The fall is cited in today’s Stock Exchange announcement, where Purplebricks says it “knows of no reason for the share price fall other than the research note published by Jefferies”.
Codling made very clear the reasons for his rating.
He told the 400 delegates that using Purplebricks is a “£1,00 coin toss – you have a 50% chance you will have saved on fees depending on where you are in the country, or a 50% chance you will have spent £1,000 and not sold your home.”
He then said, jokingly, that this had led him to make a submission for new words in the Oxford English dictionary and showed a slide that said simply “fee misery”. According to EYE journalist Neil Gerrard, who was at the conference: “That was the bit that got laughter, followed by applause.”
In the new Jefferies report, it is claimed: “Purplebricks does not disclose how many homes it sells.
“Our research sample found that it had sold 51.6% of the homes listed in November 2016 within ten months, a similar success rate to the overall market, but below the company’s claim of 88%. Unlike the traditional market, those who don’t sell still have to pay PB’s fees.
“PB’s latest results reported that its average revenue per UK customer was £1,138.”
Codling went on to say that Purplebricks is “an impressive disruptor” and that the speed of growth and the scale of its ambition were admirable: “No one can doubt that it has disrupted the markets in which it operates and we can see the attractions of the revenue growth from its upfront fixed-fee model.”
However, Codling added: “We found that 51.6% of those who instructed PB to sell their home in November 2016 had sold their home within ten months.
“These odds are finely balanced, but with around £1,000 at stake it is a close call for home owners who will pay the fixed fees whether or not they sell their homes.”
The ten-month timeframe, as the report says, is relevant because at that point the deferred payment option kicks in.
In his report, Codling refers to a Radio 4 interview in October 2016 when the then Purplebricks CEO Michael Bruce is on record as saying that the company sells 88% of homes within ten months and that it sells more houses as a percentage of those taken to market than any other agent in the UK.
However, said Codling: “We have benchmarked PB’s performance over the last 14 months against the performance of more than 7,000 different estate agency brands in the UK.
“Our analysis suggests that PB’s success rate is near the middle of the pack. However, although only just over half actually sell their home, everyone has to pay. With a traditional high street agent, the home owner only pays if the agent sells their home.”
Codling’s report concludes: “A review of PB’s accounting policies raises concerns to us that either its contractual obligations to its customers end with their home being listed on the major property portals or that revenue may have been overstated and deferred income provisions understated in its audited accounts.”
Today, Codling is likely to say much the same thing at the conference for Fine & Country agents.
Interestingly, though, his speech yesterday looks to have made the Guild nervous: a press release issued late yesterday afternoon detailed some of what Codling said, but did not mention Purplebricks by name, simply referring instead to a “certain online DIY agent”.
In reaction, Lee Wainwright, UK CEO of Purplebricks and formerly of Countrywide, said: “Jefferies’ latest analysis is a marked improvement on its previous estimate of 14%, which it later conceded was wrong. Today’s analysis is still wrong.
“The reason this analysis is incorrect is that it’s based on just one month’s data and does not include properties which have exchanged, have reached SSTC, or are on marketing breaks (ultimately we will market properties for as long as it takes to sell).
“There will still be sales that have completed but have not yet been uploaded to the Land Registry and there are also those properties that are still available for sale which will sell after the ten-month period.
“I know, given my background of 28 years as managing director of high street estate agents, that the performance of Purplebricks is considerably ahead of that achieved by traditional agents and that’s why more and more consumers are choosing to use us.
“Since we launched just under four years ago we have completed on more than £10bn of UK property and by injecting competition into the market have helped to drive down the average commission rate charged by traditional agents.”
As a broker, Jefferies says it acts for Countrywide and LSL, and also for Zoopla.
Guild and Fine & Country agents are part of the same group, GPEA, as online agent easyProperty.
It has been known for months to EYE readers that Robert May has been working on numbers on behalf of Jefferies.
The full Jefferies report can be found here.
This morning’s statement by Purplebricks to the London Stock Exchange repeats that the Jefferies research is based on a month’s data and does not include properties yet to be registered plus other properties.
It says: “Purplebricks firmly refutes the criticism in the research note of its revenue recognition policy and stands behind both the fully audited results and the accounting policy itself.”
Purplebricks goes on to give a trading update, as follows:
- 6,160 instructions in January 2018, up 66% year-on-year resulting in further overall market share growth
- Agreed sales in January 2018 alone on 4,618 UK properties
- Online market share increased in January 2018 to 77%
- Purplebricks has now sold and completed on over £10bn of UK property
- Australia continues to build and remains on-track
- The US is proceeding to plan and work continues at pace towards launch in New York
- With a few key months remaining the board of Purplebricks is pleased with progress and confirms trading is in line with the board’s expectations for the year ending 30 April 2018