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Purplebricks Exits US as Losses Increase

Online estate agent, which is 20% owned by Neil Woodford, to withdraw from US market after less than two years

James Gard 3 July, 2019 | 11:00AM

Purplebricks share price

Online estate agency Purplebricks (PURP) has announced plans to bow out of the US after less than two years. It's the latest example of the difficulties that housing firms are facing as economic and political uncertainty remains high and property prices fall.

It's been a torrid time for Purplebricks, which saw £100 million wiped off its value when it gave a profit warning in February. This was followed by the departure of UK chief executive Lee Wainwright and US chief executive Eric Eckardt.

Purplebricks entered the US market in September 2017, but after a number of difficulties,  the company will exit the market by the end of 2019. Its foray into Australia, where it expanded to in 2016, has also been unsuccessful and Purplebricks will stop trading there by the end of this year.

Chief executive Vic Darvey, who joined from MoneySupermarket earlier this year after Wainwright's departure, said the withdrawal from the US and Australia allows the firm to focus resources on the UK and Canada “where there are significant opportunities to grow market share”.

Russell Pointon, analyst at Edison Investment Research, says the withdrawal from the US will be welcomed by investors but points out that the move “has been forced on management, given the excessive cash burn overseas.” 

Full-year results for the Aim-listed firm, which describes itself as a “hybrid real estate agency", showed a 55% increase in revenue, but a widening of operating losses to £52 million, compared with a loss of £27 million in 2018. Shares, at 95p, are back at their flotation level from December 2015 after hitting nearly 500p in 2017.

Emma-Lou Montgomery, associate director at Fidelity Personal Investing, says the firm doesn’t seem to be achieving its mission of shaking up the estate agency industry. “Admittedly, it’s operating at a tough time in the UK and in its mere five years of existence there is no doubt the firm has made its mark, but it needs to do more.”

As with many listed firms in the housing sector, Darvey has described the current market conditions as challenging, with sales volumes falling. ONS figures show a slowdown in growth of UK house prices, with London and the southeast of England showing the weakest rises.

Purplebricks has grown rapidly in recent years as a disruptor of the estate agency model. High-profile backers of the firm included Neil Woodford, who bought the stock for his now shuttered Woodford Equity Income fund. Since the fund was gated in early June, Woodford has been offloading stakes in more tradeable stocks such as Purplebricks to boost liquidity.

According to Morningstar data to the end of April 2019, Purplebricks made up 1.81% of the equity income fund – even though it doesn’t pay a dividend – with Woodford holding 60 million shares. The company also makes up nearly 2% of Woodford Income Focus, which remains open to investors. Woodford Patient Capital Trust (WPCT) also has nearly 2% of the fund invested in Purplebricks.

While the equity income fund is suspended, only the top 10 holdings will be made public. But stock exchange filings show that on June 7, Woodford reduced his stake in Purplebricks from 21.5% to 19.25%. Apart from Woodford, Merian is one of the biggest investors: Purplebricks makes up more than 1% of Silver-rated Merian UK Midcap fund and a similar percentage of Bronze-rated Merian UK Smaller Companies Focus

Pointon notes that ownership of the firm is highly concentrated among three large investors: Woodford (around 20%), German publishing firm Axel Springer (26%) and Merian (around 15%), which chose to buy more shares on the same day as Woodford reduced his stake. Pointon notes there is speculation that Axel Springer will increase its stake in the coming months.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Merian UK Mid Cap P GBP Acc3.81 GBP0.91
Merian UK Smaller Coms Foc R GBP Inc2.71 GBP-0.57
Purplebricks Group PLC110.00 GBX-1.43

About Author

James Gard  is content editor for Morningstar.co.uk

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