What’s new: Purplebricks Group plc (LON:PURP) is moving its field sales agents to a fully employed status (Area Directors are responsible for specific postcodes, Local Property Partners responsible for carrying out valuations, and Local Property Agents responsible for administration).
Rationale:“The move to a fully employed model for Purplebricks’ agents represents a further enhancement to the Company’s business model, following a review of how the Company can best serve its customers, support its field teams in the future, and meet the demands of a strong market: ownership over the recruitment, training and management of a unified high-performing team will support the delivery of a consistently high level of service to Purplebricks’ customers across the country, including an enhanced opportunity to increase ancillary revenues”.
Outlook: “As guided in July 2021, it remains too early [for management] to quantify the benefit from the new pricing structures to the current financial year.
“As a result of the move to a fully employed model, the Company is expected to incur exceptional nonrecurring costs of c. £3-4m in FY22, with ongoing administration costs expected to be c. £1m higher in FY22 and beyond to support the increased size of the team.
“[In addition] marketing costs for FY22 are expected to be c. £3-4m higher than previous guidance.
“[Overall] medium-term guidance remains unchanged, and the Board continues to expect Purplebricks to be able to deliver annual revenue growth in excess of 20% in the medium-term.”
Zeus view: Management now has control over the supply of sales agents, its productivity and training. The move from “self-employed” to “fully employed” status is a natural development following Purplebricks improvement to its pricing (the addition of a Money Back Guarantee) and its focus on delivery.
Zeus forecasts. We observe the company’s instructions have increased following the launch of its Money Back Guarantee in late July. We note the increase in marketing costs and admin costs. We expect:
- increased marketing to be accompanied by increased instructions;
- “highly incentivised” remuneration to leave gross profit margin unchanged.
We will publish new forecasts in September.
Valuation: At 71p, Purplebricks Group has an enterprise value of £144m (net of c. £74m of net cash: 24p a share), which is 12x current year EBITDA and under 2x current year IFRS15 sales. Medium term, we see scope for 20% sales growth per annum and margin expansion. We consider a credible sales multiple being 4.5x to 5.0x.