Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
magazineWill Purplebrick’s purple patch continue in the US?
Challenger estate agent Purplebricks (PURP:AIM) is targeting an imminent roll-out of its hybrid model in the US after successfully establishing itself in the UK and launching in Australia in August 2016.
Peel Hunt analyst Gavin Jago says this opportunity is not yet priced into Purplebrick’s market valuation. Capturing just a small fraction of an $80bn market could see the company’s US profit exceed the figure from the UK and Australia combined by 2022, according to Jago.
Investors are clearly excited about the business, as illustrated by Purplebricks’ shares more than doubling in price since we highlighted its attractive investment case in September 2016.
Estate agent fees in the US are relatively high with buyers paying around 5% to 6% of the total transaction. This pricing structure could be ripe for disruption by the low-cost Purplebricks model.
Purplebricks charges an upfront fee to market a house for sale. It doesn’t have any expensive high street branches or lots of sales staff, although it does have a technology platform to maintain.
Can the UK model work in the US?
The company uses a fleet of representatives called ‘local property experts’, most of whom are self-employed. They earn a commission for each new instruction they win and take a share of some ancillary revenues.
Unlike the UK where estate agents typically only act on behalf of the seller of a property, in the US there are listing agents on the selling side and buying agents on the buying side.
Jago sees three ways Purplebricks can generate revenue through the US structure: selling property as a listing agent; introducing buyers to properties for which it acts as listing agent; and acting as a buying agent for other listing agents’ properties on the ‘MLS’.
MLS (Multiple Listing Service) is an online database of property listings used by licensed real estate agents in the US.
Purplebrick’s US website is expected to have a fully integrated feed into the MLS to provide an active market inventory which prospective purchasers can search.
The stock looks fully valued when only considering the existing operations in the UK and Australia. Therefore investors buying now would have to put faith in the US expansion being a success quite quickly. Peel Hunt has a price target of 435p. We remain positive at 307.8p. (TS)
Important information:
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
