Shares in Purplebricks start a new week of trading after sharp falls on Friday, prompted by analysts downgrading the business by over 80%.
Berenberg slashed its price target for Purplebricks shares from 470p to 80p – below the price at launch on the stock exchange at the end of 2015.
Investment analysts at the Hamburg-centred bank downgraded the stock from ‘buy’ to ‘sell’.
The shares fell from 133p to as low as 122.6p, before recovering to finish on Friday at about 130p.
In a note to investors headed “The Icarus of Solihull”, Berenberg said that midlands-headquartered Purplebricks had “flown too close to the sun”.
It pointed to slowing growth in Purplebricks’ UK market, saying it was “running out of steam”, and burning through £7m of marketing costs a month.
Berenberg also said that mounting losses in America and Australia had revealed the limitations of the pay-upfront fee model.
Berenberg said: “With slowing growth and accelerating cash burn, we believe the group risks being forced to raise additional equity (at a significant discount to last summer’s 360p raise) or reduce marketing spend and abandon the Australian and US operations.”
Purplebricks launched on the AIM market in December 2015, with shares at £1.
The shares went on to hit a high of 511p in August 2017. Last year the price peaked at about 490p.
However, in February, Purplebricks warned that it would not meet its revenue forecasts this year because of difficulties in its Australian and US markets.
It also announced the departures of both its UK and Australian chief executives.
Shares responded then by tumbling over 35% to 125p.
With the share price once again hovering at about that level, it is nevertheless looking far healthier than that of the UK’s biggest high street agent.
On Friday, shares in Countrywide went down again to finish at a dismal 7.3p – falling despite a ‘buy’ recommendation in the same Berenberg 75-page report on UK estate agents. Berenberg said Countrywide was “investible again”.
However, at the same time Berenberg cut its target price to 10p, from 95p.
Berenberg also upgraded Foxtons to ‘hold’ from sell’, and lifted its target price to 60p. Foxtons’ shares also fell in price, down about 1% to 63p.
On LSL – owners of Your Move, Reeds Rains, and Marsh & Parsons – Berenberg reaffirmed its ‘hold’ rating, and raised the target from 220p to 250p.
Berenberg’s report was gloomy about the estate agency sector in general, saying there is unlikely to be any material reversal in the short term “rough” environment.
It said: “The changing affordability dynamics in the UK housing market have resulted in a contracting fee pool as the secondary market has stagnated.
“Alongside general market weakness, the emergence of the online/hybrid model has placed additional pressure on fees.
“We do not anticipate a material reversal of these fortunes in the short term, and forecast the transactional fee pool to continue to decline by 1% per annum.”
>However, at the same time Berenberg cut its target price to 10p, from 95p
So the day before the downgrades Berensberg were advising its clients that they could expect roughly 1000% return by investing in CWD and about 300% by investing in PurpleBricks.
I wonder if Axel Springer is (was?) one of their clients.
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Everyone else broke this on Friday. You’ve missed the usual outrage, most people did it on EAT last week!
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The trolls finished at 5 on Friday and back to their 9 til 5 jobs today, at a desk with nothing better to do than comment on other peoples businesses. Ha!
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You just have no idea whatsoever of the irony of your comment…
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If PB fall short of their revised revenue target of £140 million (as at 21st February 2019) the share price will collapse.
Axel Springer can then ride to the rescue and sieze control.
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Ostrich17,
Original shareholders and institutions still hold the vast majority of the company. Woodford owns just less than 30% I think. Axel Springer about 11%. General Public ownership reported as being just 6.22% in March 2018 so unlikely to have much influence on decisions.
Woodford paying £7m for his original 30% stake but I’m pretty sure he invested further after that. USA expansion funded by other institutions but Woodford will have agreed to that fundraising and will have seen his shareholding diluted as a result.
I’m not sure why Axel Springer would be any more positive than other institutional shareholders but you never know. Oz was certainly already struggling when they invested. Institutions generally invest for the long term but the story has certainly changed from when PB UK was growing quickly and they raised that original £50m to enter the USA so there could be some willing sellers of the sort of amounts anybody would need to take over control.
I still haven’t ruled out further fundraising to continue in the USA. Perhaps with most of it targeting just L.A. as things clearly not going as well as expected when Axel Springer invested their £125m which was primarily to accelerate growth over there into other territories.
I’m expecting increased profits in the UK but can’t be sure because there’s no way of telling if admin & marketing has increased as a percentage of turnover. Listing numbers seem more or less similar to corresponding periods. Fees have increased and profit margins have tended to rise as more ancillary sales form part of the equation.
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PB have only got 3 more weeks to hit their £140 million target – when they fail, the fun will start !
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All the “sheep investors who fear missing out more than they fear a making a loss” (once you’ve got a high profile investor to sucker them in) will be wondering just how long the HUGE profits promised in 2014 are going to take to get here. After all the firm is well passed the 36,000 listings it needed to make a profit yet somehow a profit, let alone a HUGE one is managing to evade capture
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Robert,
You’ve admitted you don’t understand these things so why do you bother?
On the whole the people who invest in PurpleBricks are sophisticated investors. Just 6.22% in the hands of the general public and hopefully a good number of these are sophisticated enough to realise that it is impossible to make forward looking projections with any degree of accuracy. The IPO document certainly made this clear.
There will of course be investors who aren’t sophisticated enough to invest in such companies but that’s just the way it is. The warnings are there and to be honest it’s common sense to a large degree that everything isn’t going to be plain sailing.
If you are investing in a company that trades on the Alternative Investment Market then you are taking greater risks than if you invest in a FTSE 100 company. These things are made clear when you open trading accounts and it’s also made clear in the IPO documentation.
PurpleBricks a completely different company from the one listed on AIM in December 2015. It might serve you well to read the IPO documentation. Revenue was just £3.4M to the year ended 30/4/15. I’ve just had a quick look through and can’t find any estimates of huge profit (but I did look quickly) and there are so many warnings about forward looking statements you would really treat them with a pinch of salt if they were made.
Looking back at when Woodford invested £7m in 2014 I can’t find any of these projections either https://www.propertyindustryeye.com/fund-manager-neil-woodford-buys-7m-stake-purplebricks/. Woodford actually invests in many companies that fail and £7m to him is small change. I’m sure he was under no illusions and being such a large shareholder has been involved in the decision making of the company.
So I think it shows a certain naivety talking about things that you allege were stated back in 2014. But you carry on believing those alleged statements if they were ever made. Bring them up as though they apply to the current company if it makes you feel good. A sophisticated investor would have discounted these a long time ago. Entry into the USA was sanctioned by shareholders when they voted to accept the £50m investment from institutions in 2017. Heavy investment into territory after territory obviously meant the company would overall be loss making even if growth had followed the same trajectory as in the UK.
As far as I can see growth to about 40,000 instructions in the UK did put it into profit. I would be very surprised if those profits don’t increase but obviously, like I say above, I don’t have any insight into how much is being spent on marketing and admin. in the UK.
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Sophisticated investors? Does that make their huge losses more sophisticated?
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A sophisticated investor ….. how much is your income and how much profit after you have taken out overheads, is what exactly? And how many years have you been doing this? Oh yeah I’m very sophisticated.
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I would be very surprised if those profits don’t increase but obviously, like I say above, I don’t have any insight into how much is being spent on marketing and admin. in the UK.
Really you do surprise me, you are pretty good at doing research on high street agents accounts but then again I think we all know you are telling porkys as a once shareholder that lost big time.
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Not long to go for PB. Just waiting and watching the disruptors, disrupting themselves.
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For once, someone other than Jeffries is confirming what a debacle on-liners are. Very simple really unless you have your head in the sand, 1 plus 1 doe not equate to 490. NO assets, no profit, massive losses year after year and still less than 5% of market share between them all. It is a scandal that needs looking into, investormissery and the writing is on the wall. PB and ilke marketing is a disgraceful trick with the public, in knowingly fool people into thinking that this industry service can be done on the cheap and PB are no different an operation than all the others that have gone turtle, so their time will soon be up for over 95% of the housing market hasn’t believed them. When you stop using National figures and compare them to individual areas, their presence is dismal. About time their investors woke up and started to ask some serious questions if they are not using them as a tax loss.
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Remember the dotcom boom?
“If it looks too good to be true, it probably is”. But there will always be some poor saps who believe the “pssst, it’s the next best thing, get rich quick” commentary. The only people making any money are those who built the hype but made sure they bailed before the real world woke up to the unpleasant truth of how little substance the company was based on. Funny how much regular agents have nicked from the onliners and sold, but what do we know…
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With the amount of LPEs across sales and lettings leaving because of the new pay/guaranteed comission structure rolled out this month I’ll be amazed if there’s any business left in parts of the U.K. but I guess they’ve done it to save money and hope that some of the people they over recruited for to get boots on the ground will leave of their own accord. A shame if they lose some of the good’ns.
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What’s the new package ?
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For some reason the PB situation reminds me of Grant Bovey & his Imagine Homes business which crashed to the ground in 2009 having previously been talked of as potentially being a £1bn business.
https://www.telegraph.co.uk/finance/2952898/200m-valuation-for-Imagine-Homes-as-it-prepares-to-float.html
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