Purplebricks boosted by Citigroup initiation at 'buy'

Purplebricks got a boost on Tuesday as Citigroup initiated coverage of the stock at ‘buy’ with a 200p price target.

Citi said the company recently reported maiden full-year results, delivering around 450% revenue growth, albeit from a low base.

The bank expects Purplebricks to deliver strong year-on-year revenue growth of about 136% to full-year 2017, turning profitable in full-year 2018.

It said that while the majority of home buyers start their property search online, the online agency space had grown relatively slowly until the Purplebricks’ business model was established in 2014.

It pointed out that in full-year 2016, the group’s growing network of local property experts (LPE) helped the business facilitate around 60% of all online UK residential transactions, and increase total market share to about 1.2% from 0.4% in 2015.

“We expect the group to build on this strength and continue to expand the LPE network, helping drive share to 2.8% by FY17E and 4.1% in FY18E.

“The business offers a number of add-on services, largely through partnerships, which we expect to help drive revenue per transaction going forward.”

Citi also highlighted the fact the company recently established operations in Australia and is expanding the lettings offer.

“These offer the group long-term growth potential as the operations leverage technology and its asset-light business model into new verticals providing scope for significant long-term upside.”

Citi also initiated Softcat at ‘buy’, with a 410p price target, saying it expects the company to sustain strong organic growth and forecasts a 9.3% earnings per share compound annual growth rate over the next three years.

“Excess cash, growing earnings, strong cash conversion and a strategic focus on organic growth are ingredients for cash returns to shareholders,” the bank said, adding that it sees the opportunity for 20p to 40p in special dividends by FY17e without raising debt.

At 0953 BST, Purplebricks shares were up 1.7% to 131.44p while Softcat shares were down 0.1% to 315.80p.