Purplebricks – Berenberg slashes target price by over 80%

News at Astons London | 10/04/2019

Could this be a Friday nightmare for Purplebricks? Berenberg has today taken a huge swipe at the business, saying that, “With slowing growth and accelerating cash burn we believe the group risks being forced to raise additional equity (at a significant discount to last summer’s 360p raise) or reduce marketing spend and abandon the Australian and US operations.”

Berenberg cut its price target from 470p to 80p and downgraded the stock from a buy to sell rating. It said slowing growth in Purplebricks’ core UK market and mounting losses in the US and Australia had revealed the limitations of its upfront fee model.

Following the news, Purplebricks’ shares dropped by over 10 per cent to 122.6p this morning, rising slightly to 128 at midday.

Some reports say that the lack of confidence in Purplebricks is largely due the fact that it has recently lost two key executives.

Berenberg said that estate agents have endured a challenging past few years – something that traditional estate agencies would agree with.
“The changing affordability dynamics in the UK housing market have resulted in a contracting fee pool as the secondary market has stagnated,” the broker said.

“Alongside general market weakness, the emergence of the online/hybrid model has placed additional pressure on fees. We do not anticipate a material reversal of these fortunes in the short term, and forecast the transactional fee pool to continue to decline by 1% per annum.”

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