Purplebricks May Never Be Profitable

Purplebricks has ‘fallen out of favour’ with investors and the decline has hit shareholder and fund manager Neil Woodford hard, finance website Motley Fool has said.

According to the latest figures, Woodford owns 28.88% of Purplebricks.

But, says a writer on Motley Fool, the number of analysts and investors who continue to believe in Purplebricks’ growth story “is dwindling and it is easy to see why”.

Author Rupert Hargreaves, writing that “this Neil Woodford favourite could slump 45%”, says: “As I have mentioned before, Purplebricks’ low-cost, upfront fee model works when the property market is booming, and properties sell themselves, but when the going gets tough, properties don’t sell themselves, which is where estate agents earn their fees.

“Purplebricks hasn’t really been around long enough to prove that its model can work in a property market downturn, and this concerns me.

“The company is already starting to feel the pressure here in the UK.

“After years of rapid growth, the firm reported that trading in its home market is currently ‘challenging’ when it released its revenue warning at the end of February.

“In my view, this could be a sign of things to come.

“The UK property market has started to slow over the past 12 months, and Purplebricks is feeling the heat.

“As the group is still not profitable, and even the most optimistic City forecasts do not expect the business to achieve profitability for the foreseeable future, I think there is a genuine chance that this business will have to tap shareholders for further funding shortly.

“Analysts at City broker Berenberg agree, which is why they recently slapped an 80p price target on the stock — that implies a decline of 45% from current levels.

“Unfortunately, if the group’s revenue outlook continues to deteriorate, I don’t think this target is bearish enough.

“Unless the company abandons its global expansion plans, there is a strong chance it may run out of money altogether, and shareholders may not be willing to support a business that is unlikely ever to be profitable.

“With this being the case, I think it is worth selling up and moving on to better opportunities.”

Proprty Industry Eye Contributed to this article..