Purplebricks Group PLC’s (LON:PURP) UK market share growth is slowing and is likely to fall short of target, research from UBS indicates, although analysts removed their 'sell' recommendation on the online estate agency as it exits the US and Australia with tail between legs.
While embarrassing for the company, the two-pronged exodus removes concerns UBS had about cash burn and profitability, as well as allowing a greater focus on the UK and Canada businesses.
But the Swiss bank warned that its market research had found that Purplebricks’ market share gains have slowed to 30 basis points year-on-year growth in June from the 60bps in January.
With Brexit-led political and economic uncertainty clouding the outlook, UBS sees Purplebricks growing market share from 5.8% now to 7.5% by the 2024 financial year, below the company’s target of 10% in three to five years.
“Key to reaching guidance is a rebound in the housing market or a change in the pricing model which brings in additional instructions through the reduction of the upfront commitment,” UBS analysts said in the note to clients on Wednesday.
Upgrade and possible upside
UBS upped its rating to ‘neutral’ and its share price target to 110p from 110p, with the previous closing price of 110p implying UK home sales fall 5% in the current and remain stable thereafter.
“This seems fair but will be highly sensitive to a Brexit outcome,” the analysts said.
Possible upside for the shares is dependent on Purplebricks “having strategic value in the UK as a #1 dominant hybrid estate agent”, as well as achieving its new targets in the UK and Canada, exploring new opportunities such as lettings, and potentially shifting its exit from the US via a sale rather than a closure.
For any potential re-rating, management’s execution “will be key”, but the analysts are now more confident with new management at the helm, who have said they are open to changing the pricing and agent remuneration model along with other measures to improve marketing efficiency, customer experience and agent productivity.