The Sunday Times yesterday drew attention to what it called a ‘share sale puzzle’ at Purplebricks.
On the front page of its Business & Money supplement, its story cited the sale of 60,000 shares by lettings director Richard Jacques. He sold the shares in two tranches on July 27 and 31. The BBC broadcast two reports, in You & Yours and Watchdog, on August 2, that subsequently wiped 7% off Purplebricks’ value.
Purplebricks told the paper: “Richard [Jacques] was not made aware of the BBC feature before the shares were traded. He is not a member of the board [and] is involved in lettings only.”
The BBC programmes said the company was still claiming it could save vendors £4,158 on average, despite having been banned from making the claim by the Advertising Standards Authority last year. Purplebricks said that the claim had been removed from over 1,000 places and that it was an oversight that it had continued to have been used in a standard marketing email. It apologised for the mistake.
The Sunday Times story also cited the senior staff who have sold millions of pounds of shares in Purplebricks within recent months.
In July, Joby Russell – now marketing officer in Australia after holding the same position in England – and UK sales director Paul Vickerstaff acquired and sold options that netted them total profits of £214,820.
In April, senior non executive director Nick Discombe sold £4.8m of shares.
In March, eight staff and directors, including co-founder Kenny Bruce, and Isabel, wife of Michael Bruce, between them sold 7.9m shares worth £23.8m as part of fund-raising.
The Sunday Times continued its coverage inside the supplement, this time under the headline ‘Estate agent’s purple haze’.
Writer John Collingridge noted that Purplebricks’ shares have soared to give the firm a valuation of £1.2bn – “remarkable given that it has never made a profit”.
He goes on: “Like all estate agents, you have to take some things on trust, particularly when it refuses to say how many homes it actually sells. So let’s try to fill in the gaps.
“Take its revenue of £43.2m in the UK last year. Based on an average fee of £1,035 per customers, that’s 41,739 instructions. It claims to sell 83% of these homes, which implies it sold 34,643 properties last year.
“Yet it also says the total value of the property it sold was £5.8bn in the year ending April 2017.
“If it sold 34,643 for a total of £5.8bn that’s an average house price of £167,400 – well below the UK average and well short of the £240,000 average Purplebricks says it sells for.
“Fast forward to June and it was apparently selling a property every nine minutes 24/7 – that’s 58,400 a year.”
Collingridge notes that Countrywide, Britain’s larges agent, sold 61,314 homes last year.
Collingridge goes on to claim: “Vendors who read the small print can find that it contains nasty surprises.”
While vendors can defer the fee, the debt is sold to merchant bank Close Brothers and they must also use eZie Conveyancing, unless they pay a break fee of £360.
Collingridge claims that Purplebricks “refuses to say what commission it receives from eZie”.
The piece concludes that staff who have begun to reduce their stakes in Purplebricks may have “got the right idea. Sell.”
Separately, investor website The Motley Fool says that City analysts do not expect Purplebricks to report a profit until 2019, and that for the year ending April 30, 2019, they have pencilled in a pre-tax profit of £6.5m on revenues of £168m.
The Motley Fool says that as a low margin business, the company needs to achieve scale to boost margins and profits: “Luckily, the UK and US estate agency markets are enormous, so there’s plenty of room for the company to grow.”
On the other hand, it says, “at present levels, the shares are extremely expensive and while the company may be able to grow into its valuation, plenty could go wrong in the next few years that would send the shares crashing back to earth. Based on these factors, it looks to me as if it is a speculative play. It could make you a million, but it could also burn your fingers.”
According to the London Stock Exchange, the share prices of Purplebricks dipped 4.52% on Friday, ending the day at 444p.
The Motley Fool article is here: