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Purplebricks COVID-19 update

What’s new. This morning Purplebricks Group PLC (LON:PURP) has provided an “update regarding current trading and the potential impact of COVID-19 and Govt guidance on the UK housing market.” Key points are:

1.     Purplebricks first priority is health of people and customers: its online business model includes “video valuations, virtual viewings, connecting customers with potential purchasers via Purplebricks online platform.”

2.     Govt restrictions on movement are weakening vendor and purchaser activity; deferral of completions would have a further negative impact.

3.     Immediate cost-saving measures will materially reduce cash burn including suspending TV and radio advertising, reducing online marketing, taking advantage of the Government Job Retention Scheme.

4.     Purplebricks currently has net cash of £35m and no debt.

Outlook: Purplebricks board “believe that our flexible, digitally-led operating model leaves us positioned for long-term success”.

Zeus forecasts. This update is in line with the changes we made to our forecasts on 23 March, where we expected 30 April cash of £31m (i.e. 10p a share).

We estimate the UK Government recommendation that from 26 March 2020 completions are delayed until after the lockdown may defer £2m to £3m revenue from FY20 to FY21.

With lower revenues in FY21 we expect management to reduce costs. We estimate current breakeven is when Purplebricks UK generates 120 instructions a day; after management cost reductions the breakeven level is closer to 100 instructions a day, when we expect overheads and media spend to be c £4m a month.

Our FY21 forecasts assume only 25 instructions a day in 1Q but rising in the following three quarters to an annual of 110 instructions a day (see pages 2 & 3).

Valuation

At 39p, Purplebricks Group has an enterprise value (net of our estimate of April 2020 cash of £31m) of £86m, which is 0.76x our FY(Apr)20E Group revenue and 25x adj EBITDA. With COVID-19 all but eliminating instructions in 1Q21, we expect management to take action to preserve cash.

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