Purplebricks bucks the trend

It's been a difficult year for traditional estate agents, but investors are flocking to the online newcomer, says Ben Judge.

For estate agents, times are tough. The uncertainty after the EU referendum result and the rise in stamp duty have both affected the housing market, especially in London. Countrywide, which runs Britain's largest chain of residential estate agents, has had a terrible few months, issuing a profits warning, closing branches, and seeing its share price slide by more than 50%. Foxtons, the London-focused estate agent everyone loves to hate, also warned on profits as the higher end of the market slowed, and has seen its shares fall by over 40% in the last year. Other firms, such as LSL Property Services and Winkworth, have shed around a third of their value.

But for newcomer Purplebricks, founded in 2014 and backed by superstar fund manager Neil Woodford, it's a different story. Purplebricks bills itself as a "hybrid" agent, with an online platform backed up by local "property experts" on the ground, but no high-street shops. Unlike other agents, it does not charge a percentage of the property's sale price. Instead, it levies a flat fee £849 outside London and £1,199 in London whether the property sells or not. The planned ban on letting agents charging tenants upfront fees is unlikely to have "any meaningful impact" on revenue, the company said.

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In the six months to 31 October, revenues rose by 159% to £18.3m, compared with £7.2m for the same period the previous year. The number of new instructions it took rose by 108%, and it completed on £2.6bn of property transactions, compared with £2.8bn for the whole of the previous year. It is still not yet profitable in the UK, but is getting closer, making a loss before tax of £0.3m for the first half of 2016/2017, compared with a loss of £6.4m for the same period the previous year. It's also expanded into Australia, launching in Brisbane and Melbourne, where it made apre-tax loss of £2.5m on revenue of £0.4m.

However, its business model is not beyond reproach, and the company has been criticised for the clarity of its financial reporting. "What really fires certain analysts up," says Elaine Moore in the Financial Times, "is the niggling question of just how many houses are being sold." Purplebricks says there is no mystery: it has sold everything it says it has sold, and the proportion of instructions converted to "sale agreed" is 78%. That would be fine, says Moore, "if we didn't have a more exacting definition of the word sold' that involves contracts and exchanges of money and keys".

Investors are, nevertheless, encouraged. After hitting a peak in May, the share price fell steadily over the summer, but has bounced by almost 40% since the company reported its interim results on Monday, and has now risen by more than 50% in the last year.