Following an exceptionally strong period for the UK housing market in FY2021, buoyed by the stamp duty holiday, Purplebricks reports that the six-month period to 31 October 2021 has been more challenging.
Purplebricks has just release a trading update for the six months ended 31 October 2021. It reveals that new instructions have slowed significantly in recent months, given continued strong demand across the housing market is not being met by sufficient supply of instructions. This imbalance has resulted in new instructions coming to market being approximately 23%1 below the comparative period last year.
The Group says that it has driven considerable transformation during the first half of the year and has significantly invested in and transformed its business model in this period, introducing new pricing and a simplified proposition alongside a new operating model.
The online estate agency says that it is pleased with the ‘progress’ they have made transitioning its sales team to a fully employed model, which will offer their agents greater security and benefits and will enable the company to scale up quickly when market conditions improve.
Purplebricks says that it now has over 95% of its new sales team in position and are starting to see encouraging progress across both conversion rates and ancillary attachment rates. They also report to be pleased with the progress they have made in enhancing their digital capabilities as they ‘continue to transform the buying and selling experience for consumers’.
Given the supply and demand imbalance in the market and the disruption caused by the business transformation, the company expects to report a reduction in instructions for the six-month period to c. 22,000 (H1 2021: 35,387).
The firm’s cash position has also weakened. As at 31 October 2021 was approximately £58m, down from £75.8m on 31 October 2020, which reflects a period of significant investment in digital, non-recurring costs incurred in managing the business through the pandemic and one-off exceptional costs in transitioning to a fully-employed model. The company expects the cash position to stabilise in the second half of the year.
Going forward, uncertainty remains regarding the imbalance of supply and demand in the housing market and given the disruption caused by the business transformation, they expect this dynamic to continue into the second half of the financial year, impacting new instructions for the full year. The cost guidance provided with the Group’s update on 10 August 2021 remains unchanged, and therefore adjusted EBITDA is expected to be below previous guidance.
‘This transformation is yielding positive results in terms of growth in ARPI and we are starting to see progress in our market share aspirations and are well-positioned to grow following the completion of our transition to a fully employed model in the second half,’ according to the update.
The Company’s 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, with confidence in the Group’s ability to deliver against its growth strategy.
Vic Darvey, CEO, commented: “Following a stronger period for instructions last year, supply in the market has fallen as we slowly adjust to a below normal level of activity following a period of successive lockdowns and the end of the stamp duty holiday. Our service proposition remains strong and compelling, with properties selling quickly, but the reduced amount of stock coming to the market is proving challenging.
“Against this more challenging backdrop, the team is continuing to execute on our transition to the new operating model. We are encouraged by the early results we are seeing on the ground and whilst they are not yet reflected in the overall group performance, we are confident in the strategy and that we have developed a strong platform for growth as activity levels pick-up. We are committed to our mission of achieving 10% market share by being the go-to-place to buy, sell or let your home.”
The Stock Market clearly did not find the update reassuring as this morning Purplebricks’ shares crashed 30% in value.