It may draw little sympathy, but life is getting tougher for estate agents. Just a week after Countrywide (CWD) warned the fall in first-half adjusted cash profits would be at the top end of guidance, Purplebricks (PURP) has announced a strategic overhaul of its international operations amid rising costs and weakening markets.
Founder Michael Bruce has stepped down as chief executive, replaced by chief operating officer Vic Darvey, who joined the group just three months ago. A spokesperson for the group said it was felt now was the “right time for new leadership” in the face of a number of challenges over the past year.
The shares fell by as much as 11 per cent on the back of the news, taking the 12-month decline to more than two-thirds.
Mr Bruce’s departure follows February’s announcement that UK chief executive Lee Wainwright and US chief executive Eric Eckardt would be shortly leaving the group.
The online estate agency will exit the Australian market, with returns insufficient to justify continued investment as property prices have fallen across the country. The US business will also be scaled back from seven to two states – Florida and Los Angeles – and marketing activity materially reduced.
“With hindsight, our rate of geographic expansion was too rapid and as a result the quality of execution has suffered,” said chairman Paul Pindar, adding that management had “made sub-optimal decisions in allocating capital”.
Revenue is expected to fall in line with management’s £130m-£140m guided range for the year, although that was revised down in February from the £165m-£175m previously expected.
The digital disruptor has invested heavily in marketing and administration to break into the Australian and US markets over the past two years, which, together with UK expansion, has resulted in rising pre-tax losses and declining cash balances. The latter stood at £62m at the end of April, down from £71m in February.
However, Berenberg’s Sam Cullen said he expected Puplebricks to eventually withdraw from the US – where it has spent around £35m in marketing – altogether.
“It’s a business that no one’s heard of in the US and if you can’t market it, I find it difficult to believe that they’re going to build the instruction business,” he said. Given the rate of cash being burned through, it would be difficult to continue to fund US marketing spend – even at a reduced level – from the UK and Canadian businesses, he added.
However, analysts at JPMorgan expect a reduced group adjusted cash loss of £30m for 2019 – down from £38m – and are forecasting a £6m profit in 2020, compared with prior expectations of a £11m loss. The broker argued that there was now limited cash-burn potential in the international operations, “clearly derisking the portfolio”.
While Purplebricks has continued to gain share in its core UK market – expected to push revenue there ahead by between 15 and 20 per cent this year – housing market weakness across the country could reduce the pool of available business. Growth in UK transactions has stalled after dropping from a 2016 peak of 1.32m, according to the Office for National Statistics. Meanwhile, an average April house price increase of just 0.9 per cent, based on the Nationwide House Price Index, was also far below the average growth rate of between 2 and 3 per cent recorded throughout 2018.
