You cannot say that we have not warned you repeatedly. But some folks like Neil Woodford knew better. Britain's top share blogger (mornings only), Thirsty Paul Scott, was also a fan and we know how accurate his analysis is. I don't know about Scott but Woodford has been averaging down aggressively. Neil always knows better which is why he is worth £37 million a year. Now we have another high profile horror story for Britain’s most conceited fund manager & yet another shocker for the nation's thirstiest share blogger, with a truly shocking lack of profits warning from Purplebricks (PURP). I shall explain below why this makes the target price 0p....it is enough to turn a man to drink...
San Leon Energy – great news; tender offer at 46p per share. Read from HotStockRockets - where a red hot share tip goes live THIS AFTERNOON HERE
The head of Purplebricks in the UK and also in the US have walked the plank although the company insists that the former departure was planned. Well done Mr Rat for your planned departure from SS Purplebricks. There is all the usual flannel but to cut to the, geographic, chase: We are told that in the UK; “Whilst the UK housing market has continued to be challenging for the estate agency industry, the Board still expects to report UK revenue for the current financial year of approximately 15-20% above the prior year. The Company also expects to maintain its 75% share of UK online instructions and for Purplebricks to continue to be the clear market leader in UK hybrid estate agency.” Ok so what are the hard numbers? If you work them out in sequence from H1 last year through to H2 this year the figures are £34.8 million, £43.3 million, £48.3 million, £41-.5-£45.4 million. In other words H2 this year will actually see lower sales than in H1. That is terrifyingly bad.
Then there is Oz: “Although the Australian housing market has experienced a number of headwinds, the Board is encouraged by the new leadership team, the positive changes made in the model towards the end of 2018 and the current level and quality of activity. However, the anticipated amount of recognisable revenue will not be sufficient to meet expectations for this financial year.” Oh dear - what about the US: “The Company is making better than expected progress with conversion from opportunity to listing, listing to sale and sale to ancillary revenue, receiving positive reviews and feedback from customers. However, there has been a slower than expected response to the second US marketing initiative that concluded towards the end of January. There are some early positive signs from the third US marketing initiative and a recent change in business model to payment on completion. The vast majority of short-term investment will be focused on the Los Angeles and Florida markets. As a result of this, the Board does not expect the amount of US revenue to be sufficient to meet its expectations in this financial year.” Oh dear again. But at least “the business in Canada has performed well and remains on track to meet management's expectations. The Board continues to be encouraged by current and future opportunities in this market.” The expectations were for a stonking loss and cashburn so that’s alright then.
The net overall effect is that while on 13 December the company told us to expect FY sales of £165-175 million now, just two months later, and with ten weeks of the year still to run, we are warned to expect sales of just £130-140 million. That is a catastrophic downgrade and given the UK metrics suggests sod all earnings visibility. What about (lack of) profits? We are told that the UK will achieve a double digit adjusted EBITDA margin for the full year so that is c£9 million +. In H1 it managed £8.4 million so that implies only a tiny H2 bullshit earnings margin ( so with capitalised costs that means a real loss and cash outflow) and things are heading the wrong way. The trend is, overall, not Neil Woodford or Paul Scott's friend.
What we are also told is that cash balances at the end of January were £71 million. At October 31 they were £103.1 million but there was an acquisition payment of £11.1 million in December. None the less that means that three months trading saw an average of £7 million a month heading to money heaven. Given the fact that the company has c£20 million of deferred income on its balance sheet as a current liability that means that net current assets will, at this rate, be negative by September. But given how trading is falling off a cliff in the UK it could well be sooner. In short there is no way that Purplebricks can survive until Christmas without a major fund raise and who is going to back that given how trading is deteriorating? Woodford has no cash, Axel Springer paid 360p for its shares (half bought off management) less than a year ago and must be very unhappy bunnies as a result. This company could well go bust by the Autumn. These shares closed previously at 164p valuing this company at £496.9 million. It is a sell. Target price 0p.
Filed under: Purplebricks, PURP, Haydale, San Leon Energy, Chris Oil, MediaZest, Optibiotix, R4E
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