Purplebricks Group: Money back guarantee

What’s new: Purplebricks Group plc (LON:PURP) “Money back guarantee” will be the focus of market attention: its full year results are suitably ahead of its pre-close update in May:

▪ 22% rise in total fee income to £87.1m (c. 1% above Zeus est: £86.4m)

▪ 13% rise in IFRS15 revenue to £90.9m (c. 2% above Zeus est: £88.7m)

– 14% rise in instructions to 58,043 (FY20: 50,948);

– Purplebricks’ market share at 4.6% (FY20: 5.1%) based on TwentyCi estimate of sales by volume; – 7% rise in average revenue per instruction to £1,501;

▪ 12% rise in IFRS gross profit to £57.7m (c. 2% above Zeus est: £56.8m) – 63.5% gross profit margin (Zeus forecast: 64.0%);

▪ Step change in adj EBITDA to £12.0m (c. 9% above Zeus est: £11.0m)

▪ £74m cash balance on 30 April 2021 (as set out in the May trading update), reflected adj PBT of £8.0m and operating cash inflow of £13.0m.

Board comment on capital: “too early to return capital to investors”, as it may consider M&A and “introduce initiatives that would absorb more working capital”.

Redefinition: Instructions are now shown net of refunds. This impacts the calculation of average revenue per instruction, but not IFRS revenue or profit.

New pricing: Money Back Guarantee and simplified two-tier proposition (successfully trialled in North West and launching across the UK this month).

Outlook: Vic Darvey, CEO, said “With a simplified proposition and our new pricing structure in place, … Purplebricks is well placed to gain market share and to accelerate revenue growth and progress towards our medium-term targets.” The Board expects “annual revenue growth in excess of 20% pa” and is targeting “10% market share”.

Zeus forecasts. Purplebricks’ Money Back Guarantee broadens its addressable market: evidence from its trial in the North West suggests an 18% increase in consideration, which may result in an increase in market share. In practice IFRS accounting will smooth the impact. We will observe Purplebricks instructions, as the initiative is rolled out. With guidance for EBITDA to be flat year-on-year (in line with consensus), we leave our forecast revenue and adj EBITDA for years to April 2022 and 2023 unchanged. Our revenue and EBITDA forecasts on page 2, include a £2m increase in marketing but no beneficial impact from Purplebricks’ new pricing.

Valuation: At 85p, Purplebricks Group has an enterprise value of £187m (net of c. £74m of net cash: 24p a share), which is 15,6x current year EBITDA and under 2x current year IFRS15 sales. Medium term, we see scope for 20% sales growth per annum and margin expansion. We consider a credible sales multiple being 4.5x to 5.0x.

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