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Purplebricks plc

Purplebricks Group Plc Update on trading & management

Purplebricks Group Plc (LON:PURP) trading update reveals subdued trading in challenging market conditions. The Board has reduced the guidance for group revenue for the year to 30 April 2019 from £165m to £175m to £130m to £140m under IFRS15.

 Purplebricks UK maintains its 75% share of UK online instructions and expects to grow UK revenue by 15% to 20%;
 In Australia, following changes to the model, a lower level of instructions will result in recognisable revenues falling below expectations;
 In Canada, the business is performing well and remains on track;
 In the US, slower response to marketing has led management to focus on Los Angeles & Florida and expected revenues will be lower than expectations;
 Net cash at the end of January 2019 was £71.0m (on 30/10/18 was £103.1m).
 The UK CEO and US CEO will be shortly leaving the business: Vic Darvey, the Group COO who joined in January from MoneySuperMarket.com will take over responsibilities as UK CEO and Michael Bruce Group CEO being US CEO.

Zeus’ view: We reduce our forecast from £170m to £135m: a 20% or £35m cut.
 UK revenue cut £12m to £88m: guidance range is effectively £86m to £89m;
 Australia revenue cut £9m to £11m: 41% CCY cut; we observe 524 sales in 3Q & our forecast is consistent with 1,000 sales in 6m to 30 April 2019;
 Canada revenue trimmed £4m to £25m;
 US revenue halved to £11m, which is a 49% CCY cut.

On 30 April 2019, we now expect the group to have circa £54m cash (our previous forecast was £70m). While the Purplebricks UK remains cash generative, we estimate Purplebricks Australia may require up to £10m cash investment to reach breakeven within 24 months and Purplebricks USA to require circa £40m p.a. We expect the group to be cashflow positive from April 2020.

Valuation: At 165p, Purplebricks’ share price, net of 23p cash per share, values the group on 3.2x our new forecast group revenue to April 2019.
 We expect Purplebricks UK to generate a positive EBITDA of over £11m in the current year; double to over £24m next and continue to grow strongly (see Exhibit 1). Valuing Purplebricks UK at 150p a share (i.e. £455m) would be 5.2x FY(Apr)19E revenue; 4.0x prospective revenue and approximately 24x prospective divisional adj PAT with a PEG of under 1x..

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.