Purplebricks Group interims prompt Zeus Capital upgrades

Purplebricks Group plc (LON:PURP) interims to 31 October, confirm the 8% rise in instructions to 35,387 (1H last year: 32,850) and net cash of over £75m (as set out in the recent trading update). The full interim results for Purplebricks reveal:

  • 6% rise in UK fee income to £49.1m (1H20: £46.3m) with Average Revenue Per Instruction “ARPI”, rising 3% to £1,392 (1H20: £1,353);
  • “Deferral of fee income over the service period under IFRS15” reduced reported revenue 6% to £44.2m(1H20: £47.1m)
  • 1% fall in UK gross profit to £29.6m (1H20: £30.0m) reflecting deferral of revenue, offset by rise in gross profit margin to 67% (1H20: 64%);
  • £8.4m 1H adjusted EBITDA (110% above 1H20 comparative of £4.0m including central costs, and 53% above 1H20 UK division only: £5.5m);
  • £75.8m net cash at end October 2020 (15 July: £66m; 30 April: £31m);

Full year guidance on EBITDA: “Whilst there are reasons to remain cautious on the economic outlook, … expect adj EBITDA for the full year to exceed the upper end of current range of consensus” (i.e. £10.6m, source RNS).

Outlook: Vic Darvey, CEO said ““Our focus for 2021 will be to re-accelerate the growth of our core business by continuing to enhance our digital innovation, our virtual capabilities and increasing agent productivity through automation and efficiency. This period has shown that our technology-led business model is now more relevant than ever, as customers continue to shift to being more comfortable buying and selling their homes digitally.”

Zeus view: These interims enable us to raise our EBITDA forecast for FY(Apr)21 by 83%. We will set our FY(Apr)22 forecasts after the analysts’ presentation.

With 1H ARPI up 3%, we expect FY21 ARPI to rise 4% to £1,450 (our previous estimate was £1,370). We leave our forecast for 2H instructions unchanged, and we expect “fee income” to rise 7.5% to £80.4m (previous estimate was £77.0m). After reversing the revenue deferral in 2H, we expect the full year gross margin to be similar to last year (i.e. 64%; our previous forecast was 63%). Overall we raise our revenue forecast 5.7% to £86.7m and gross profit by 7.8% to £55.5m.

We leave our forecast overheads unchanged at £25.5m (1H: £12.2m; 2HE: £13.3m), and trim our marketing spend by £1m to £19m (1H: £9m; 2H: £10m). Overall, we raise our adj EBITDA forecast by 83% to £11m (previously: £6m).

Valuation: At 75p, Purplebricks Group has an enterprise value of £161m (net of £71m of net cash: 23p a share), which is 1.86x UK revenue and only 2.90x gross profit.

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