Purplebricks may be a super brand but shares tell a different story as company apologises to investors and resets

The property disruptor this morning announced the departure of its CEO and is reining in its international expansion, but insists its model is still sound  

James Moore
Chief Business Commentator
Tuesday 07 May 2019 11:24 BST
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Purplebricks was named a super brand in the UK but the shares have struggled
Purplebricks was named a super brand in the UK but the shares have struggled

“A reset,” is how Purplebricks described this morning’s announcement of the resignation of founder and CEO Michael Bruce together with an exit from Australia and the launch of a strategic review of its US business.

The property disruptor charges a flat fee to people looking to sell their homes rather than working on commission like traditional estate agents. The catch is that the customer has to pay the fee regardless of whether their property is sold or not.

The model has nonetheless rapidly gained traction in the UK, and the company’s successful marketing recently got it named on one of those “super brand” lists people like to put out.

But there’s nothing super about the way it has performed as an investment. Purplebricks joined the stock market at a quid in 2015 and backers were richly rewarded in the early days. The stock was touching a fiver within 18 months as investors got stars in their eyes over the plans by Bruce and his team to take the brand global.

But the shares hit a bump in the road when stockbroker Jeffries last year issued a sharply critical research note, questioning the company’s sales success rates, and describing selling with it as “a £1,000 coin toss”, a reference to the fees which top that in London post codes.

The broker argued the model hadn’t been sufficiently tested and claimed that the shares were priced for “perfection”.

The latter part of that has proved prescient given the less than perfect performance the company has put in. Chairman Paul Pindar issued what can only be described as a grovelling apology to its investors in the latest update. “We are very conscious that the group’s performance has been disappointing over the last 12 months and we sincerely apologise to shareholders for that,” he said.

However, Purplebricks denies that there is any problem with the model per se. Pindar rather put the blame for the company’s issues on trying to go global too fast and making some bad investments, or, as he put it, “we have also made sub-optimal decisions in allocating capital”.

It’s an all too familiar story for companies of this type.

Purplebricks says the success of its Canadian and UK businesses, despite the tough market in the latter, demonstrate that the model remains sound. It may still continue trying to make a go of the US on a “more cost effective basis” under new CEO Vic Darvey, an alumnus of Moneysupermarket where he was MD, once the review has been completed

But Darvey and co have still been left with a lot to prove if this super brand isn’t to be seen as a super bust.

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