Purplebricks share price plunges by over a third as online estate agent downgrades profit outlook

by Jonathan Adams
purplebricks group plc

The Purplebricks share price plunged by 37% yesterday to take losses for the year to over 67% of the company’s valuation. The drastic sell-off followed an announcement by the online-only real estate agency that its 2021 profits will fall well short of expectations with the blame attributed to a lack of housing inventory available to sell. The company yesterday told investors underlying profits for the financial year to the end of March 2022 would fall “below previous guidance”.

A pre-tax profit of about £1.2 million had been expected by analysts at Peel Hunt, Purplebrick’s broker. However, they have now drastically revised that down to an expected £12.4 million loss. The outlook doesn’t improve next year either when a loss of £7.1 million is now expected compared to the previous forecast for a £7.9 million profit.

purplebricks group plc

The current Purplebricks share price of 33.25p is at its lowest level since the major stock market sell-off in March last year when the coronavirus crisis hit. The company is worth about a third of the 100p-a-share it listed at in 2015 before a 500p-a-share peak achieved 18 a year and a half later. While house prices continue to hit record highs, which mean more money for real estate agents who generally earn a fixed percentage of the sales price, sales numbers are much more important to the sector. Those have plunged with fewer homes being put up for sale as the country grapples with a “supply and demand imbalance”.

The number of homes for sale over the summer was down 23% on the previous year according to data from the Rightmove real estate portal. Purplebricks reports a 38% drop in the number of homes it was instructed to sell between May and October of this year with this year’s total around 22,000 properties. Savills data indicates that other than between April and May 2020 when the property market practically shut down due to lockdown restrictions, housing market stock is currently at its lowest level in seven years.

Transaction numbers are, however, holding up. Around 100,000 homes were sold over the month of September in both 2019 and 2020 with about 166,000 sold over the same month this year. While numbers were probably notably boosted by buyers rushing to take advantage of the stamp duty holiday, it is still an impressive figure.

Purplebricks has unfortunately not been able to take advantage of that market buoyancy and has lost market share to rivals. It blames that on recent “disruptions” to its business model. It previously charged fixed fees of £999 (£1499 in London) to market a home for sale, due regardless of whether the property sold or. However, as of this summer the decision was taken to return fees for any homes listed without attracting an offer within 10% of the valuation price.

Purplebricks is also now employing “local property experts”, read real estate agents, who were previously on self-employed contracts. The company is currently dealing with legal claims by former agents that say their self-employed status meant they were denied holiday pay and pension contributions they should have been entitled to. The law firm working on behalf of a group of former Purplebricks agents has said it believes the action could cost the company and peers that operated a similar model “tens of millions of pounds”.

Purplebricks’s position is that the action has no legal basis, with chief executive Vic Darvey commenting:

“There would never have been a perfect time to move from self-employed to employed — we would have had to do it at some point. I’m very happy to lose some [market] share over a short period of time in a long game.”

In the medium term Darvey is confided Purplebricks can deliver revenue growth of over 20% and is “encouraged by the early results we are seeing on the ground”, after the switch to a full employment model.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
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