The founder of Spicerhaart, Paul Smith, has challenged the Purplebricks valuation and its claim to be the fourth largest agent in the country.
He says that Spicerhaart, whose offices trade under a number of different brands, is undeniably the country’s fourth largest estate agent. The firm always stresses that it is an independent, not a corporate entity.
Online agent Purplebricks is due to start trading on the AIM stock market on December 17 with a valuation of £240.3m.
Smith said that Purplebricks’ valuation had been calculated, according to its AIM listing prospectus, at 4,300 listed properties and 165 listers.
He went on: “How can Purplebricks be the fourth largest when our haart brand alone has twice as many listings as they have, and when our whole group has almost three times as many listings on our websites?
“We still stake our claim to be the fourth largest estate agent in the UK.”
Smith said he has no intention of either selling or floating his own company, which he co-founded with his father Alick in 1989, and whose brands today are haart, Spicer McColl, Haybrooke, Felicity J Lord and Chewton Rose, plus Darlows in Wales.
Separately, writer Nils Pratley in the Guardian says that at first glance the valuation for Purplebricks “is ludicrous”.
He says that basic financial information, such as turnover and profits, is unknown as those figures are published later on in the process of flotation.
He goes on: “In the meantime, it is almost meaningless to boast that revenues in September 2015 were ten times greater than in September 2014 when you’ve been operating for only 19 months.
“Back-of-the-envelope calculations suggest Purplebricks is still a small business. It has 4,300 properties on its books for sale and if each generates revenue of about £1,000 via the low-fee model, that produces £4.3m. Even if the stock turns over 10 times in a year (ie each property sells in about five weeks), that’s £43m of revenue at the current pace.
“So a £240m valuation would represent almost six times revenues – aggressive even for a business with the magical ‘disruptive’ label. What’s more, the stated gross profit margin of 59% excludes the cost of TV advertising, which doesn’t come cheap and is Purplebricks’ main medium for building its brand.”
However, Pratley concludes that the £240m price tag “is not plucked out of the air”, pointing out that the company has just raised £25m based on that valuation.
He says that Purplebricks’ business model “looks a genuine threat to traditional estate agents”.
He concludes: “The comfortable world of estate agencies has looked ripe for reinvention, to the benefit of customers, ever since the internet came along, but it has never quite happened. (Rightmove and Zoopla don’t count because they merely grabbed agents’ marketing budgets, rather than cut fees for punters.)
“One of these days, someone will crack it, which is why so many online outfits are having a go. There are no guarantees, but Purplebricks looks well placed.”
* There is an interesting short video here:
http://video.ft.com/4644059924001/Digital-disruption-in-the-property-sector/companies
Comments (21)
…. and yet they offer no service to those that do not use or have internet access. No-one is arguing that the internet doers not assist an agent, whoever they may be.
What always seems to be forgotten is (1) what service an agent provides. The high street all options. the internet only option is inferior unless your talking fee.
The internet option is being pushed as a save yourself costs, get the large volume of properties on and the income comes rolling in. That is the trick they employ and speculation that they will succeed. Just likes stocks and shares trading, your investment is at risk and even more so when after 20 years or so “the internet only option” has never made it work. They are fighting amongst themselves and pure speculation of company value and that they will make good. Just work out how many properties they have to sell to achieve the £250M and stock levels are dwindling!
A clear case of the old fashioned conman trying to hide his spots? The only winner is the directors fat salary while it lasts.
And yet, hard market share data of on-line agents seems stubbornly remote from what they would have the public and press believe and is, in fact, shrinking…
http://www.propertyindustryeye.com/online-agents-have-under-3-market-share-of-listings/
Bit embarrassing! 1.2 million sales per annum is at least 20% out for 2015. Transaction volumes are on the floor and will struggle to reach 1 million; the annualised YTD figures show we are headed for about 94.4 million.
If a firm banks on cutting fees to the bare bone and relies on volume to deliver ambitious profit projections being 22% out on volume is likely to have a devastating effect on profits.
The valuations of new businesses with a disruptive approach to an established industry are never about ‘now’. Which is what makes it so hard for those that are deeply entrenched in the incumbency to understand. Investors don’t look at today’s revenue or EBITDA but solely consider industry size and in the case of estate agency it’s 1.2m annual sales, plus lettings plus ancillary income. Then they look at the likelihood of the disruption getting cut through overall. Then the likelihood of the particular business in question succeeding in its endeavours to win a big slice of that new market.
If you take the examples of Countrywide (market cap £900m), LSL (market cap £380m) and Connells they command just 10% or so of the resi transactions in the UK. So it’s easy to see why investors will believe it’s quite possible that a business, with all of its marketing spend focussed on one brand rather than 46 in the case of Countrywide, will succeed in grabbing share from those incumbents. It’s happened in just about every other sector already. Therefore a PurpleBricks valuation of £240m right now is simply based on the percentage of it’s likely worth when and if it succeeds further down the line.
When they/we do, fees will go up because we’ll be in a position to dictate such and those fees will still be at a lower number than the incumbents and will remain better for the consumer than the traditional option. Frankly, hybrid/online agents won’t need to operate on current fee levels for long and as service levels continue to overtake the high street (hard to swallow, but they just are…)
We’d all argue (and we have done) on how big the so called online space will be in comparison to bricks and mortar agents but companies like mine, and our investors, simply see that there will be a substantial rise in traction for us that are doing things well. And so they back that with millions of pounds in order to make that happen through marketing, tech, great teams etc. If we/they are right, then two or three such businesses will end up dominating a substantial number of those UK transactions just like happened, as a great example, with the insurance industry whereby aggregating comparison sites have now divided the industry up between just a handful of them and, consequently, they are worth hundreds of millions of pounds because of that status.
It’s going to happen in estate agency. ‘Online’ will soon make up a substantial share of future transactions now that these investments are being utilised. The consumer is driving that and it’s inevitable.
Ahh so the valuation is based on (fictitious) future market share/growth with no actually tangible proof that its ever going to occur. It’s not really then a valuation at all, more like the odds they’ll give you if all the hyperbole actually comes off. I think I’ll stick my money on the outisder 3.10 at Chepstow, much more chance of backing a winner.
Haterz gonna hate
“The consumer is driving that and it’s inevitable.”
Sorry – but in my opinion anyone in any public service industry who refers to their current and potential future paying client as “the consumer” has completely lost sight of the rabbit, metaphorically speaking.
That, of course, is if they ever had even the most fleeting glimpse of said bunny in the first place…
“Investors don’t look at today’s revenue or EBITDA but solely consider industry size and in the case of estate agency it’s 1.2m annual sales…”
SORRY??
Not sure where you are getting your figures from*, Mr Quirk but your “1.2m annual sales” have only occurred ONCE (and then only just…) since 2008.
In fact, the actual (HMRC) average for the seven available years is a shade under 965,000.
In other words, YOUR figure is 24.5% higher than that issued by The Government.
Hope you don’t mind – but I know whose numbers I will be relying on.
My question is why are you so woefully far off the mark when the figures are so readily available?
* some things never change, eh?
There is an old adage that something is only worth what someone is prepared to pay for it. The City may speculate, then decide based upon numbers. They are very demanding, and will expect far more accountability than crowdfunders. In my opinion, even if the price could be rationalised, it’s hard to see where the growth is to make a good return on investment . Turnover is not a good measure for valuation, profit and growth is. Results count, not projections. If PB does not succeed, it will have a profound effect on other such ventures which perhaps explains their rush to be first.
How about a fiver please, smile please?
This weekend amongst other properties we took on an £895,000 house at 1.5% what does that value my company at? PB need to sell* almost 14 properties to generate that income? -Sorry *LIST
4300/165 = 26 properties each is a very long way off the £100k dream ticket.
3500 activity centres covered by 165 reps? This is where the ASA embarrass themselves; each rep is ‘local’ to 21 towns or city areas and so is competing with 120 local estate agency firms (officed and un-officed)
More reps, ideally 3500, inevitably means a dilution of income. Realistically the income for the hours fall down below Junior negotiator wages so I can’t work out why anyone would be prepared to commit to working so hard for someone else when the terms are so heavily stacked in favour of the gang master.
This is one of many issues for an “Online agent” the quality of staff will always be questionable at best as numerous other posters have highlighted.
Have you ever had a B&Q kitchen designer visit you to “Design” your kitchen. In my opinion will be a very similar experience. They turn up ask YOU what you want and where, they have no input just show a picture what it could be like after YOU designed and YOU chose units. Now use an experienced Kitchen designer, THEY come up with ideas, THEY suggest units, THEY advise you and THEY offer something you have not thought of.
Online are listers, High Street agent are FULL SERVICE. One is on minimum (or worse wage) the other adds value and is paid accordingly.
Staffing is the key, this is where onliners are saving money not on premises and this is what High Street agents need to be hammering into sellers.
thats the trouble,, 12k to sell a house is to much really and allows Purple bricks to trade on this.
Its the 80% of other agents in the rest of the country getting about £1500 a sale that are left flabbergasted that the public would choose purple bricks over them.
The media dont hep by saying traditional is bad for the consumer…we are not amazon, just like you could do heart surgery yourself but it would be bloody messy,
Happy sales chasing punters..thats where our fee is earnt anyway
“thats the trouble,, 12k to sell a house is to much really…”
No – THAT’S the trouble –
(dunno what happened there – maybe I’ve gone a little rusty in posting skills – but I will continue…)
You know nothing whatsoever about the circumstances involved here – you simply state an opinion that something sounds expensive.
You don’t have a Scooby what smile please will do for his quoted Fee – or how much it actually costs his Agency to market the property.
In comparison to my average Fee it’s a fortune – but in comparison to my average house price it’s a streets’ worth and I could earn the same in less time with less expenditure than this single transaction so good luck to those that can get it, I say. It’s only worth something when it exchanges, after all!
Whilst the first sentence is off target in my opinion, the rest of your comment lands straight in the gold, Bless You.
You are of course right Peebee we are really going to town on advertising (as we should) and we are covering the cost of all of it upfront.
They could have gone to another High Street office and received a cheaper fee but the advertising would have been less or they had to pay upfront for it. They also felt more comfortable with us.
14k is not our average fee. Bread and butter is more like 5/6k but again its all results driven and nothing payable upfront.
Our fee is not excessive but is at the top end for where we are, other agents do charge more for less as well and are successful.
Bless You, They are aware online agents offer a cheaper service but want an agent that delivers more than listing a property. They are seasoned movers that know the difficult part is not finding a buyer but qualifying and progressing the sale. We also do a far superior job in marketing (getting them the highest price possible) which is all included with our fee and we have a database of buyers will actually call and send details to – Cherry on the cake is they do not have to pay me a penny if i do not deliver what i have promised.
About this “It has 4,300 properties on its books for sale and if each generates revenue of about £1,000 via the low-fee model, that produces £4.3m. Even if the stock turns over 10 times in a year (ie each property sells in about five weeks), that’s £43m of revenue at the current pace.”
Well I’ve taken two properties off this company in the last 6 months (in fact they only had three properties in our area as far as I can tell)
So the back of the envelop calculation needs to assume a number of failed sales, Oh I just realised they take the money upfront DOH! So once you pay them the money how well protected are you as a vendor?
Multiply by 4 not 10 and you’re nearer the mark. Just been talking to an agent who knew the buyer of the only evidenced sale in our area, the property undersold by £15,000 (on asking price alone) and it took 2 weeks to arrange a viewing.
Well done executors you just breached your duty of care to the beneficiaries!
Good questions – that an awful lot of us have been asking since this story was first trailed…