Shares in hybrid estate agent Purplebricks (LSE: PURP) rose 2% as markets opened this morning after it released another encouraging update. With signs that it is gaining traction in international markets, should prospective investors make a move before the shares fly past £4?
Great progress
Trading for the year ended 30 April has been “strong” according to Neil Woodford-backed Purplebricks. With year-on-year instruction growth of 83% in H2, the UK arm of the company is expected to build on the adjusted EBITDA of £300,000 achieved in the first half when it announces full-year results on 29 June.
While performance in the UK looks robust, it’s arguably the company’s plans for overseas markets that most excite investors. Business in Australia “continues to be very encouraging” with two new locations (Perth and Adelaide) added to the three in which the company already has a presence. Given that customers are saving approximately A$12,000 in fees by selecting Purplebricks services (according to the business), that’s not all that surprising.
It differs from more traditional estate agents thanks to its lack of bricks and mortar outlets and use of self-employed Local Property Experts. As far as the latter is concerned, recruitment doesn’t seem to be a problem. At the end of last month, Purplebricks had 525 such advisers on its books — 85% of whom were located in the UK. This far exceeds the target of 360 set by the company in January last year. Depending on how much weight you give them, online reviews of Purplebricks’s services also continue to be positive with an average score of 9.5 from Trustpilot’s 17,252 reviews.
CEO Michael Bruce reflected that the previous year has been one of “great progress” and that the company’s first expected full-year profit in the UK demonstrated the success of the its business model. Although light on detail, Bruce also stated that the company’s plans to enter the US market — due to happen in the second half — were “progressing well”.
Still a buy?
Priced at 322p a share, Purplebricks now carries a market cap of £873m. Can it breach the £4 barrier though? Quite possibly. Such are the growth opportunities available (and the problems attached when attempting to value the company using conventional metrics), Purplebricks could quite conceivably achieve this price based on optimism alone. Indeed, analysts are suggesting that the company’s US venture is yet to be factored-in to its valuation.
Its first-mover advantage also means that it continues to take market share from established agents in the UK, even if the number of online transactions in the housing market is still very low (around 5%). Regardless of how buoyant/depressed the market may be, the fact that owners can save themselves a healthy amount of cash by taking the online route should also give Purplebricks earnings a degree of protection not afforded to competitors.
Despite this, it must be highlighted that disappointment often follows excitement when it comes to growth stories. While the investment case remains compelling, the shares could fall heavily if its US rollout does not progress as well as hoped. So, while I see nothing to suggest that shares in Purplebricks won’t continue rising between now and the end of June (bar a shock election result), those final results will be critical for outperfomance to continue.