Jefferies says Purplebricks pushing patience of home sellers

A visit to the Purplebricks.com website by the broker found 14% of the properties classed as 'sold' between 29 October 2014 and 31 March 2016 in three of the company's more mature markets - Birmingham, Bournemouth and Southampton - had coverted to actual transactions on the land registry database.

The broker said this meant the number of sales had increased since its original analysis two months ago and it expects the number to keep rising.

"The lucky 14% who have sold their homes waited on average around 4.5 months between selling subject to contract and actually selling. For the rest the wait has been around 6.5 months so far and the clock is still sticking," Jefferies said. "For us the arithmetic for Purplebricks still does not add up."

Analysts agreed that Purplebricks was selling houses, "but not as quickly as we'd expect from their website", which states that 'On average it takes us just 14 days to find a buyer'.

Jefferies suggested that if the company also quoted the average time it takes to legally complete the sale potential customers could better assess the cost/benefit trade off of the attractive fixed fee, which is just £798 outside London or £1,158 in the capital and surrounding areas.

At Wendesday's closing price of 141p, Purplebricks traded on a ratio of 102 times 2017 forecast earnings and an ratio of enterprise value over operating profits (EV/EBITDA) of 70.3 times, and offers a dividend yield of 0.2% against the traditional agents who trade on an average of PER 8.0 times, EV/EBITDA 8.9 times and a yield of 8.4%.

Jefferies said the current Purplebricks share price expected "perfection", whereas its discounted cash flow-based target price of 94p suggested material downside to the price of the shares.

"However should the model bed down and sales accelerate ahead of our expectations, the shares may not currently reflect the true value of a disruptor."