The stock dived by almost 10% on Thursday, and the AIM-quoted firm said it knows of “no reason” for the sudden slide, other than a punchy sell note from Jefferies.
Price target of just 95p
Analysts at the US investment bank claimed Purplebricks shares were worth just 94p – far below the 475p they were trading at the time.
In its note, Jefferies said it “admires the speed at which Purplebricks has grown” and can see the “attractions of the revenue growth” from its upfront, fixed-fee model.
But it raised concerns over the number homes actually sold, suggesting that just over half of the homes listed in November 2016 had sold within ten months.
That’s similar to the rest of the market and way short of Purplebricks’ own claims of 78%.
Accounting policy "raises concerns"
Jefferies’ Anthony Codling also questioned the group’s accounting policies – a touchy subject for investors at the moment given Carillion’s recent collapse.
“A review of PB’s accounting policies raises concerns to us that either its contractual obligations to its customers end with their home being listed on the major property portals or that revenue may have been overstated and deferred income provisions understated in its audited accounts.”
Purplebricks hit back on Friday morning though, saying that it “contests the findings” and pointing out that Jefferies’ estimated completion rate is based on a single month’s data.
“Purplebricks reiterates its most recently published sales conversion rate from instruction to sale agreed of 78%, which it believes more accurately reflects its sales performance,” read the statement.
The estate agent added that it “publicly refutes” the analysts’ criticism of its revenue recognition and auditing policies.
Trading in-line with expectations
At the bottom of Friday’s release was a brief trading update, which showed that Purplebricks received 6,160 instructions last month – 66% higher than the same month a year earlier – and agreed 4,618 sales.
Its expansion into the US is “proceeding to plan” while its Australian business “continues to build and remains on track”.
The company concluded: “With a few key months remaining the board of Purplebricks is pleased with progress and confirms trading is in line with the Board's expectations for the year ending 30 April 2018.”
Shares were down 5% on Friday morning to 430.4p.