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Purplebricks Group Plc

Purplebricks Acquisition adds Canadian “brick” – Zeus Capital

This morning Purplebricks Group (LON:PURP) has announced the acquisition of Canadian commission-free real estate service network, DuProprio, on a cash free/debt free basis for CAN$51m (£29.3m).

* DuProprio has an exceptionally strong position in Canada

Remarkable management team headed by Marco Dodier (CEO), Senior Jean Bruno Lessard (CFO) and Lukas Lhotsky (COO), who have used organic cash flow to grow DuProprio.

20% share of the real estate market in French speaking Quebec, which is c 17% of the total Canadian market;

2% market share in Ontario and Western Canada, which together represent around 60% of the Canadian real estate market;

average revenue per listing of CAN $1,030 (up 6% from 2017);

DuProprio’s Net Promoter Score in Quebec is 61, which is considerably higher than the Canadian real estate agency industry average of 38.

* Opportunities in Canada

Introduction of Purplebricks’ hybrid model with dedicated Real Estate Experts and buyside services, to grow DuProprio’s revenue generation;

Introduction of Purplebricks brand outside Quebec;

Geographic expansion into British Columbia and Atlantic States (c 23% of Canadian market).

The statement says “Purplebricks is committed to … rapidly build market share outside its core Québec market and to support the roll out of a Québec buy-side brokerage … funded … over the next two years … [by] up to £15m, which includes the reinvestment of Duproprio’s operating profits”.

Zeus’ view: We have added Canada to our forecasts for FY(Apr)19E: raised revenue by £24m (i.e. 12% to previous forecast); as profits generated in Quebec are reinvested in other Canadian states, our forecast of PBT contribution is unchanged. Our forecasts already assumed additional investment in N. America.

Results on Thursday 5 July, should provide guidance on investment.

Valuation considerations: In our opinion, EV/revenue provides a sensible valuation guide, given Purplebricks’ business model. DuProprio has been acquired on 1.1x historical sales, which is clearly enhancing for the group.