City analyst disputes Purplebricks' claim of 77 per cent conversion rate

One of the most respected City analysts of the changing residential sales industry says Purplebricks’ business model is worth admiring - but the odds are not so attractive to vendors, as one-in-three pay a fee but do not sell.

Antony Codling, equity analyst at financial investment consultancy Jefferies says yesterday’s figures from Purplebricks were interesting for the inclusion of revenue growth, operating loss as a percentage of revenue, its number of so-called Local Property Experts and its website visits.

But Codling is unhappy with Purplebricks’ alleged conversion rate from instruction to sale agreed - the agency’s figures claim 77 per cent, relating to instructions between April 2015 and March 2016 inclusive. 

“Purplebricks defines sale agreed as when both buyer and seller have appointed solicitors, effectively offer accepted, or sold subject to contract. The group does not disclose how many of the 77 per cent have converted to an actual sale, but it does suggest that the conversion to sale agreed may increase over time as some of the 23 per cent still on the market may still receive an acceptable offer in the coming days and weeks” writes Codling in a note to his investor clients.

But Jefferies reckons some of that 77 per cent may not ‘last’ as actual sales.

“We estimate that one in three of Purplebricks' paying customers do not sell their home. Rightmove believes that 'on average about 15% of Sold STC or under offer properties come back on the market after the sale has failed to proceed'” writes Codling. 

“If we apply this to Purplebricks’ 77 per cent conversion rate we derive a sales success rate of 66 per cent, which suggests that one in three customers have paid their fee but not sold their home. The average fee in [the financial year ending] 2016 was £901” he adds.

Codling concedes that Purplebricks is highly ambitious and enthusiastic.

But after describing the firm’s plan to launch in Australia later this year he writes: “We continue to worry that they are not focused on the appropriate KPI - we would channel that energy on helping the one in three who don't sell, rather than using their money to develop other parts of the business”.

Codling - whose firm also advised Zoopla Property Group during its initial public offering and launch on to the stock market - also asks whether Purplebricks has ambitions to become a portal rather than solely an estate agency website.

“The success of Rightmove, in our view, is largely down to focus, it wants to be one thing, in one country, to all people. Purplebricks wants to be many things to many people, in many countries. It wants to list your home, sell your home, sell you conveyancing services, mortgage products, sell data and in the future launch 'The Purplebricks BUYERS App', help you with removals, utilities and broadband, and not just in one continent” he claims. 

“We worry it is trying to compete in an Iron man contest before it can walk” he concludes.

Codling's concern appears not to have been shared by all investors, however - Purplebricks' share price closed yesterday up 2.91 per cent at 135.06, after being substantially higher still earlier in the day's trading.