Profits warning from Purplebricks

Purplebricks has released a trading update this morning cutting group revenue and profit guidance and replacing divisional CEOs in both the UK and US, after short tenures.

Group revenue guidance for the 2018/2019 financial year is cut from £165m-175m to £130m-£140m.

Shares plunged in early trading to £1 before recovering to around 120p.

In the UK business, the company is expecting 15-20% revenue growth compared with last year. It said it also expects to maintain its 75% share of UK online instructions and for Purplebricks to be the clear market leader in its sector. This morning’s guidance says that the UK business is expected to achieve an adjusted EBITDA margin in double digits.

However, in both the US and Australia traction is lower than expected with consumers, and both businesses will fail to meet expectations this year.

In Australia, the housing market has suffered “a number of headwinds”, and Purplebricks has made “positive changes” in its model. However, revenue will not meet expectations.

In the US, Purplebricks said it is making better than expected progress, with a recent change in the business model to payment on completion. However, the board does not expect the amount of US revenue to be sufficient to meet its expectations in this financial year.

In Canada, the business has performed well and is on track to meet expectations.

In the statement, it says that Purplebricks as at the end of last month had £71m cash. However, in its interim results for the six months ending October 31 last year, it stated that net cash was £103m. This suggests the company has been burning cash at the rate of £10m per month.

This morning’s statement also said that Purplebricks’ UK CEO Lee Wainwright, appointed about a year ago, will shortly be leaving the business. It said the departure is for personal reasons.

Wainwright was with Countrywide for 26 years before joining Purplebricks in March 2017 as chief operations officer. He became CEO in January last year.

The American CEO Eric Eckardt is also leaving, after two years.

Group CEO and founder Michael Bruce is taking over as day-to-day leader of the US business with immediate effect.

In the UK Purplebricks group chief operating officer Vic Darvey takes over as CEO. He joined the business only in January from MoneySupermarket.

Purplebricks said: “Vic has extensive experience of leading strong tech-focused, customer-centric businesses and will play a key role in the future direction and next stage of growth for Purplebricks.”

Today’s statement said: “The board wishes to thank Lee and Eric for their contribution.”

Michael Bruce said: “Although there are macro and industry headwinds across markets we are well placed to capitalise on the significant opportunity for growth that exists in each country, albeit not entirely as we would have wanted before our year end.

“The UK is leading the way with continued profitable growth and a strategy to deliver greater success. I am also excited to be taking the reins of the US business.

“The team in Australia are building on the changes they implemented late last year and Canada is delivering on plan and expectations.

“The board remains confident of the long-term growth potential of the business and the opportunity to deliver substantial value for shareholders.”

City analyst William Packer, of Exane BNP Paribas, said: “Purplebricks’ disruptive model has grown rapidly in the UK in recent years and is now among the leading agents in the UK.