Spicerhaart boss Paul Smith asks questions over Purplebricks’ £240m valuation

The founder of Spicerhaart, Paul Smith, has challenged the Purplebricks valuation and its claim to be the fourth largest agent in the country.

He says that Spicerhaart, whose offices trade under a number of different brands, is undeniably the country’s fourth largest estate agent. The firm always stresses that it is an independent, not a corporate entity.

Online agent Purplebricks is due to start trading on the AIM stock market on December 17 with a valuation of £240.3m.

Smith said that Purplebricks’ valuation had been calculated, according to its AIM listing prospectus, at 4,300 listed properties and 165 listers.

He went on: “How can Purplebricks be the fourth largest when our haart brand alone has twice as many listings as they have, and when our whole group has almost three times as many listings on our websites?

“We still stake our claim to be the fourth largest estate agent in the UK.”

Smith said he has no intention of either selling or floating his own company, which he co-founded with his father Alick in 1989, and whose brands today are haart, Spicer McColl, Haybrooke, Felicity J Lord and Chewton Rose, plus Darlows in Wales.

Separately, writer Nils Pratley in the Guardian says that at first glance the valuation for Purplebricks “is ludicrous”.

He says that basic financial information, such as turnover and profits, is unknown as those figures are published later on in the process of flotation.

He goes on: “In the meantime, it is almost meaningless to boast that revenues in September 2015 were ten times greater than in September 2014 when you’ve been operating for only 19 months.

“Back-of-the-envelope calculations suggest Purplebricks is still a small business. It has 4,300 properties on its books for sale and if each generates revenue of about £1,000 via the low-fee model, that produces £4.3m. Even if the stock turns over 10 times in a year (ie each property sells in about five weeks), that’s £43m of revenue at the current pace.

“So a £240m valuation would represent almost six times revenues – aggressive even for a business with the magical ‘disruptive’ label. What’s more, the stated gross profit margin of 59% excludes the cost of TV advertising, which doesn’t come cheap and is Purplebricks’ main medium for building its brand.”

However, Pratley concludes that the £240m price tag “is not plucked out of the air”, pointing out that the company has just raised £25m based on that valuation.

He says that Purplebricks’ business model “looks a genuine threat to traditional estate agents”.

He concludes: “The comfortable world of estate agencies has looked ripe for reinvention, to the benefit of customers, ever since the internet came along, but it has never quite happened. (Rightmove and Zoopla don’t count because they merely grabbed agents’ marketing budgets, rather than cut fees for punters.)

“One of these days, someone will crack it, which is why so many online outfits are having a go. There are no guarantees, but Purplebricks looks well placed.”

* There is an interesting short video here:

http://video.ft.com/4644059924001/Digital-disruption-in-the-property-sector/companies

Originally posted here.

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