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Purplebricks Group Plc Trading and strategic update

Purplebricks Group Plc (LON:PURP) has released a trading update, which confirms group revenue for the year to 30 April 2019 will be within the £130m to £140m range guided on 21 February, and also reveals:

 Purplebricks UK “continues to out-perform” in “challenging” market conditions and in 2019 it will focus on “further profitable growth”;

 The “Canadian business continues to perform well and [meet] … expectations”; The Australian business has not delivered the “progress the Board expected” and so “has been put into an orderly run down … pending closure”;
 In the US, “investment in marketing and other overheads” has been “materially scaled back” and a “strategic review” to assess “opportunities and risks” begun;
 Vic Darvey (previously MD of Moneysupermarket.com Group plc), who joined Purplebricks in January as COO, has been appointed Group CEO;
 Net cash on 30 April 2019 was at least £62.0m (31/1/19: £71.0m).

Vic Darvey, Group CEO, observed that Purplebricks has “two outstanding business in the UK and Canada, both of which enjoy market leading positions [and he looks] forward to reporting [Purplebricks] results on 3 July.”

Zeus’ view: We maintain our forecasts for FY(Apr)19E with revenues of £135m. We cut our forecast FY(Apr)20E revenue by 14% to £159.4m, overheads by 25%, media spend by 33% and cut forecast adj EBITDA losses from £(26.2)m to £(1.0)m:

 For UK & Canada, our forecasts remain unchanged, as both these market-leading businesses are only a few days into FY(Apr)20E;
 For Australia, we expect closure will cost under £5m (old forecast: £7m loss);
 For US, we have cut our forecast EBITDA to £(20)m loss (old forecast £(43)m loss), so our forecast Group Cash on 30 April 2020 is £40m (i.e. 13p a share).

We assume cash generated by Purplebricks UK will be reinvested into the US.

Valuation: At 135p, Purplebricks has an enterprise value (net of £62m cash) of £347m, which is 2.6x FY(Apr)19E Group revenue, 3.1x our estimate of FY(Apr)19E UK and Canada revenue of £113m and 2.3x our FY(Apr)20E Group revenue.

Purplebricks’ results on 3 July should provide evidence of its increasing market shares in UK and Canada, and these business units’ ability to deliver revenue growth with benefits of scale delivering increasing EBITDA margins.