What is new: Purplebricks Group Plc (LON:PURP) Interims reveal profitable growth in the UK driven by volume growth, rising average revenue per transaction, increasing gross profit margins and strong cost controls. Financial highlights, using IFRS 15 and constant currencies, are:
Group revenue rose 75% to £70.1m (with prior year on IFRS15)
UK revenue up 39% to £48.3m with instructions up 20% and average revenue per instruction up 6% to £1,209;
UK contributed 69% of group revenues (1H last year: 88%);
Group gross margin rose from 57.3% to 59.9%, with group gross profit rising from £23.0m to £42.0m (+82%)
UK gross margin & gross profit rose from 57.7% to 64.6%, with UK gross profit rising from £20.1m to £31.2m (+56%);
Group adj EBITDA was £(21.0)m reflecting investment outside the UK
PB UK delivered positive adj EBITDA of £8.4m (up 265%);
PB Australia’s negative adj EBITDA rose 76% to £(9.7)m including reorganisation costs;
PB USA’s adj EBITDA more than doubled from £(6.0)m to £(20.0)m;
PB Canada contributed £0.4m positive adj EBITDA for 3 months;
Net cash on 30/10/18 was £103.1m (30/10/17: £64.4m) after investing net cash of £27.3m to buy a Canadian hybrid agent. In November it invested £11m in a JV in German leading hybrid estate agent, Homeday;
Management outlook refers to Purplebricks continuing to grow strongly and its revenue guidance using IFRS15 (c 2% impact) is £161m to £171m.
Zeus’ view: Overall, our FY19E forecast EBITDA for FY19e has improved marginally to from £39.5m to £30.1m, as we alter the composition to reflect increased UK gross profitability (now 63.5% but previously 56.5%), the negative impact of the change in revenue accounting (c£2.5m revenue impact), and the improvement in the UK costs to revenue ratio to 19%.
Valuation: At 149p, Purplebricks’ share price, net of 34p cash per share, implicitly values the UK business at under 8.5x earnings. Valuing Purplebricks UK at 14.5x current PER or 11.5x prospective would be 196p a share (£593m) or 6x revenues. A sum of the parts valuation, with other Purplebricks business units valued on 6x revenue is 362p based on our forecasts to April 2019 and 510p based on our forecasts to April 2020 (Exhibit 3).