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Purplebricks Impact of COVID-19 crisis

What’s new. After an encouraging seasonal increase in Purplebricks Group Plc (LON:PURP) instructions in January and February 2020, activity in recent days has slowed sharply and we see prospects for a prolonged period of low activity during the COVID-19 crisis.

Purplebricks is well capitalised with net cash of £41.6m on 30 October 2019. We expect group cash to be above £31m (i.e. 10p a share) on 30 April 2020 and 2021.

In 2019 management began closing Purplebricks’ Australian and US units. In December 2019 the guidance of less than £14m was repeated, implying 2H costs of under £5m. An adjusted October 2019 net cash of £36m.

We expect the Group‘s continuing operations in 2020/21 will be cash generative with strong control over administration costs and media spend (see page 2).

Zeus forecasts. We leave our FY20 revenue forecasts unchanged but cut our forecast UK revenue for the year ending 30 April 2021 by 33% to £67.0m and Group revenue by 29% to £97m.

Interim results revealed that in very difficult markets, Purplebricks performed well by maintaining market share of new listings in the UK and kept 1H revenue “broadly flat” with 1H20 revenue of £47.1m (1H19: £48.4m), with 33k instructions (1H19: 39k) and average revenue per instruction of £1,353 (1H19: £1,209). For the full year we expect UK revenue to be down 6% YoY to £85m (FY19: £90.1m) with average revenue per instruction rising to c £1,450, following £100 rise in October.

Interims also revealed greater spend on media and admin than we had forecast. We have rebased our adj EBITDA forecasts for the Group to reflect the costs incurred in 1H in both UK and Canada, and also reflecting the COVID-19 outlook.

With lower revenues in FY21 we expect management to reduce costs. We estimate a breakeven in the UK when Purplebricks is generating 120 instructions a day; after management cost reductions the breakeven level is closer to 100 instructions a day.

We have set our FY21 forecasts assuming 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 45p, Purplebricks Group has an enterprise value (net of our estimate of April 2020 cash of £31m) of £107m, which is 0.9x our FY(Apr)20E Group revenue and 31x adj EBITDA. With COVID-19 all but eliminating instructions in 1Q21, we expect management to take action to preserve cash.

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