Purplebricks told to "slow growth" and "get its house in order" by City analyst

After a roller-coaster day on the Stock Exchange yesterday, Purplebricks has sought to defend itself against further possible share price losses with a statement to shareholders issued this morning. 

The statement, which follows a six per cent drop in the company’s share price yesterday, reads:

The Board of Purplebricks Group plc notes the recent share price movement.

The Group was the subject of two BBC features on Wednesday 2 August relating principally to the clarity of the deferred payment facility available to customers, the Group’s compliance with a recent Advertising Standards Association (“ASA”) ruling, and alleged exaggerated claims by some of its Local Property Experts about levels of instructions and/or sales they had obtained.

The Board is confident that disclosure of the terms and nature of the deferred payment facility, provided by Close Brothers, are clear and transparent. The registration and acceptance process of the facility has been reviewed by the Property Ombudsman and by the Trading Standards Institute and no issues were raised or changes requested. The Group has received complaints relating to the payment terms and facility from only 0.2 per cent of customers.

Furthermore, from the last 47,000 facility agreements entered into by customers only two complaints were considered by the Financial Ombudsman and in both cases neither were upheld.

The purpose of the facility is to offer Purplebricks’ customers an alternative to immediate payment on instruction, and the majority of customers take up this option. The facility comes with no additional cost or interest to the customer.

In the context of the small number of cases where customer feedback has indicated that the disclosure does not match Purplebricks’ high standards for transparency, the Group has nevertheless committed to enhance the clarity of its notification to customers accordingly.

With regard to the ASA ruling, Purplebricks has previously sought to quantify to potential customers in its marketing literature the levels of savings that they might on average achieve based on publicly available data, such as the Which survey on estate agent commission levels. In a ruling in 2016, the ASA requested that Purplebricks no longer refer in its marketing to an indicative average saving, based on the premise that this could prove misleading.

The Group had in any case already decided to remove references to this figure from its marketing materials. The BBC drew attention to examples of a standard email format that inadvertently still included the savings figure. The Group immediately removed this reference and apologises for this oversight.

The BBC also aired claims that certain LPEs have provided exaggerated instructions and/or sales figures for their respective areas.

Whilst Purplebricks has not had access to the precise data and areas being reviewed by the BBC, the Board believes that the figures provided by the LPEs concerned have fairly reflected the performance of the teams operating in those areas. However, the Group has committed to ensure through its ongoing training that LPEs are clear about the statistics that they use and the territories and postcodes to which they are referring.

Michael Bruce, founder and Chief Executive of Purplebricks, commented: “The Board and the Group are committed to the highest levels of customer service and disclosure, and we believe this is reflected in the business’ sales growth and the high levels of customer satisfaction evidenced by its 23,000 Trustpilot reviews with an average score of 9.5 and its rating of Excellent. The Group is the most positively reviewed estate agent in the UK.

“We seek to satisfy and surpass our regulatory obligations at all times, and where we find circumstances where we have fallen short we seek to rectify these situations at the earliest opportunity. The Purplebricks’ offering has already saved consumers in the UK tens of millions of pounds when selling their properties, and we are focused on building on this position still further.”

The announcement came after a strident attack on the company from City consultancy Jefferies, which has predicted Purplebricks’ shares will “under-perform”.

In a note to investors released overnight, Jefferies’ leading residential sector analyst, Anthony Codling, gave this warning: “Having watched last night's Watchdog show we reiterate our Underperform rating on Purplebricks shares. Our take is that the very fast pace of growth is leading to operational issues and management do not have the necessary span of control to stop its Local Property Experts falling short.”

Codling continues: “We appreciate that there are bad apples in every cart, but perhaps the pace of growth is leading to lower quality LPEs than are needed being recruited. The shares are counting on a lot of success in the future, however we believe that in order for Purplebricks to deliver the profits so eagerly anticipated, it needs to slow its growth and get its own house in order before seeking to sell the homes of others.”

Codling praises Purplebricks co-founder Michael Bruce for appearing on the BBC Watchdog programme last evening to address what BBC presenter Steph McGovern called “loads” of complaints about the agency from viewers who had been in touch. 

“In our view there must have been a high volume of complaints to warrant a feature about Purplebricks on BBC's Watchdog, a prime time show, on BBC's flagship channel, which investigates viewers reports of problematic experiences with businesses across the UK. The fact that Purplebricks has made prime time UK TV does lead us to question who has correctly assessed Purplebricks model, the BBC or Trustpilot?” asks Codling, referring to the oft-quoted positive reviews received by the agency on the Trustpilot site.

Codling says he was comforted that Bruce agreed to work harder to be more transparent. 

“Hopefully now he will disclose how many of the homes listed by Purplebricks are actually sold by them, rather than just the fees they earn from listing the homes whether they sell or not. Purplebricks tell us this figure is commercially sensitive, but it is a KPI disclosed by all of the other UK estate agents we cover” concludes the Jefferies analyst.