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Purplebricks – half-year trading update, sensible yet again to be doing the opposite of Woodford

By Tom Winnifrith & Steve Moore | Tuesday 6 November 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

A trading update for its half-year ended 31st October 2018 from Purplebricks (PURP) is noticeable for what it fails to say not for what it actually says...

It commences, in terms of metrics, on the UK “year-on-year revenue growth of approximately 20%”, on the US “there are some 140 Local Real Estate Experts and sales consultants operating in seven states”, on Australia “recent changes made to our customer proposition have been well received and have resulted in a significant increase in conversion from valuation to instruction” and on Canada “web visits continue to grow with over 5.4 million in Quebec and over 2 million visits in the English provinces in the four months since acquisition in July”. Er, what about the bottom-line?...

… No mention of ‘profit’ – just “the company remains on course to meet the previously provided guidance for full year revenue of between £165m and £185m… As at 31 October 2018 the company's balance sheet remains strong with a net cash position of over £100m… Longer term with the best known brand in the sector, our flexible business model and the strong balance sheet, Purplebricks is well placed to further strengthen its leading UK position and replicate this success overseas.

Firstly, revenue is of course vanity – though even that compares to more than £222 million Nomad Zeus Capital was forecasting as recently as early July. Then, the full-year balance sheet showed liabilities comfortably in excess of receivables (for example, £9.4 million of “trade and other receivables” against £15.6 million of “trade and other payables”) and cash of £152.8 million. The company notes the latest update “is stated after the £29.3m cash cost for the acquisition of Duproprio but before the Homeday investment of £11.1m” - i.e. it still remains underlying cash burn aplenty.

Such balance sheet erosion won’t see it well placed for further expansion for too long, there is increasing evidence the brand is becoming the best known in the sector for negative reasons and requiring a flexible business model due to the likes of self-admitted “increased competition” and “a challenging market backdrop” in the UK and “challenges in Australia amid a tough market backdrop” (with the outlook for the US and Canadian markets seemingly far from encouraging too) ain’t positive either!

Despite the shares having already significantly fallen from highs of above 500p, with a market cap still of comfortably above £550 million, it looks to be sensible yet again to do the opposite of Neil Woodford – still a sell.

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