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Purplebricks struggles to stem outflows after broker issues damning ‘sell’ note (PURP)

Short-seller favourite Purplebricks (LSE:PURP) has hit back at broker Jefferies after its scathing sell note on the online estate agent sent shareholders running for the hills on Thursday. Shares in Purplebricks fell by more than 7pc after Jefferies questioned its business model and slapped it with a 94p price target, well below its current market value of 444.4p. Jefferies’ chief concern is that Purplebricks does not disclose the number of homes it sells. The broker said that the actual number of listed homes sold by the estate agent falls well below its claims of 78pc.

‘A review of Purplebrick’s accounting policies raises concerns to us that either its contractual obligations to its customers end with their home being listed on the major property portals or that revenue may have been overstated and deferred income provisions understated in its audited accounts,’ said Jefferies.

‘Should the model stumble, the share price may do likewise.’

On Friday, Purplebricks hit back at the broker, contesting the findings of its research report and criticising its sample size for being too narrow. The estate agent said Jefferies’ estimation of its completion rate is based on just one month’s data and does not include completed properties, which have yet to be uploaded to the Land Registry, a process which can take several months.

‘Equally, the research does not take into account properties which have exchanged, have reached sold subject to contract, or are on marketing breaks,’ said Purplebricks.

‘Purplebricks firmly refutes the criticism in the research note of its revenue recognition policy and stands behind both the fully audited results and the accounting policy.’

The firm, which is due to launch in New York in the second quarter, said trading remains in line with expectations for the year ending 30 April 2018, adding that it agreed sales on 4,618 UK properties in January 2018 alone. Purplebricks’ words went some way to stemming outflows on Friday, with shares down by just 1.9pc at the time of writing.

A favourite of star investor Neil Woodford, Purplebricks has long been popular with short sellers, as we’ve reported recently. We stand by our view that the company is fiercely over-valued and lacks transparency. The business, which operates in the UK, US, and Australia, currently has a market cap of £1.2bn despite generating a £8.2m loss in H1 2018. This compares to a loss of just £2.8m in H1 2017.

Many believe Purplebricks will likely to continue to struggle in the future as well. It is competing against a saturated US market, a slowing UK housing market, and continued calls for more transparency. Last August, many feared that a decline was on the horizon after a number of the firm’s directors sold off their holdings. Most notable among these sellers was letting director Richard Jaques, who disposed of 60,000 shares at 480p each, bagging him £288,000. This came just months after on of the founders of the firm sold off £24m worth of stock.

DISCLOSURE

The author of this piece does not hold a position in any of the companies covered in this article.

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