Challenger estate agency business Purplebricks (LSE: PURP) is emerging with something it hasn’t seen before: earnings. The company’s troubled history has been characterised by big losses until now.
So, is it time for me to buy shares in Purplebricks to benefit from the turnaround under way? And will the business go on to become the disrupting growth story investors such as Neil Woodford always hoped it would become?
Purplebricks’ improving finances
Today, the company reported on the six months of trading to 31 October. Revenue declined by 6% year on year. But there was an improvement in operating cash inflow before changes in working capital. The figure came in at £4.1m, which is a vast improvement on the £8.8m cash outflow suffered a year earlier. On top of that, Purplebricks posted earnings per share from continuing operations of 1p compared to a loss of 1p a year earlier.
The firm reported in July the disposal of its Canadian operations for cash proceeds of around £35m. And that completed the retreat from an ill-conceived international expansion programme. The move has “considerably strengthened” the cash position with net cash on the balance sheet increasing to almost £76m. That compares to a balance of £31m on 30 April.
I reckon the cash performance of the business works as a good indicator of its underlying health. And today’s news encourages me. The lack of borrowings and a healthy net cash position is one of the strengths of the investment proposition. I think it’s a decent platform upon which the company can build its future growth.
Meanwhile, the directors strengthened its leadership team recently with the appointments of new Chief Digital and Chief Marketing Officers. And there have also been other new hires “across the business” aimed at ensuring the company can deliver its “digital transformation program.”
Purplebricks has been saying for some time that it‘s a technology-led estate agency business. The directors reckon there’s “clear evidence” customers are shifting towards apps and tech-based alternatives when shopping for a property. It seems Purplebricks is determined to be at the forefront of businesses adapting to changing patterns of consumer behaviour.
Exceeding expectations
Looking ahead, the company said there are reasons to remain cautious on the economic outlook. However, the directors expect adjusted EBITDA for the full year to “exceed the upper end of the current range of consensus.”
Meanwhile, despite the pandemic, the trading environment for all estate agents appears to be buoyant right now. However, I’m a little cautious about the cyclical nature of the industry. And because of that, I reckon the company’s valuation looks quite full.
With the share price near 76p, the forward-looking earnings multiple for the trading year to April 2022 is around 33. That drops a bit if I account for the firm’s cash pile. I’m tempted to pick up a few of the shares to hold for the long term to see if Purplebricks can succeed with its rebooted growth strategy in 2021 and beyond.
