The wheels come off Purplebrick's disruptive bandwagon, and Domino's fails to deliver overseas

“Trump’s latest trade war tariff threat has not had the negative effect on UK shares as seen in other markets at the start of the week," says Russ Mould, Investment Director at AJ Bell.

“While the UK was enjoying a public holiday on Monday, markets across Asia, Europe and the US posted decline. Come Tuesday and the FTSE 100 only slipped by 0.3% as weakness among banks and utilities was softened by strength among pharma and mining stocks.

“Investors are no doubt being comforted by the news that China’s vice-premier Liu He would travel to the US for another round of trade talks later this week.”

Purplebricks

“The wheels are coming off the disruptive bandwagon for Purplebricks as its overseas growth plans fail to play out as expected.

“The decision to exit Australia after less than three years and indicating it may materially scale back its US operations is catastrophic for Purplebricks’ reputation.

“These two regions were the main engines of its overseas growth plan and today’s announcement is effectively an admission of failure.

“Fast-growth, supposedly-disruptive businesses have been in vogue for the past five years or so, as investors flock to companies trying to either change existing industries or create ones. There has been a lot of promise and little profit as many of these companies adopt aggressive roll-out plans.

“The proof is always in the execution and failure to deliver on growth promises will result in share price pain – as Purplebricks has found out.

“It joined the stock market at 100p on 17 December 2015 and the shares nearly hit 500p in July 2017. Since then Purplebrick’s shares have been in steady decline and now trade at 127p, so nearly all of its gains since IPO have now been wiped out.

“A 6% drop in the share price following the latest news seems quite tame in the context of its overseas operations being dramatically scaled back and the departure of founder and chief executive Michael Bruce.

“However, you have to consider that Purplebricks issued another shocking update only three months ago which prompted the departure of the UK and US bosses. Expectations were therefore very low ahead of today’s update.

“Ultimately Purplebricks has been trying to do too much too fast. It would be better served by fine-tuning the UK operations and slowly expanding overseas one step at a time.”

Domino's Pizza

“One of the key concerns about the future prospects of pizza takeaway business Domino’s is that it has reached saturation point in its core UK market.

“This puts the onus on its overseas operations to deliver growth and is probably why today’s update and its gloomy prognosis for the international arm has resulted in such a negative market reaction.

“In many ways Domino’s has been a victim of its own success on these shores. Its recipe has proved so successful that it has risked cannabilising its own sales in order to continue the roll-out of new outlets.

“Despite having access to a strong brand, there is no guarantee of success in markets with significant differences from the UK in terms of their culinary culture. And Domino’s is rowing back on a previous pledge to break-even with this part of the group in 2019.

“Even here in the UK, there are signs of diminishing appetite for its offerings with the volume of orders slipping and like-for-like sales only held up by price increases which are unlikely to be sustainable longer term.

“Then there is the issue of its deteriorating relationship with its franchisees which is likely to constrain any expansion plans on these shores.

“Franchisees face rising costs and Domino’s decision to split geographical territories means new stores may be less profitable. As such, they have joined forces to lobby for a greater share of profits.”

These articles are for information purposes only and are not a personal recommendation or advice.