Companies can struggle to live up to the “disruptor” tag. Not Purplebricks, the self-styled “UK’s leading tech-led estate agent”. For much of its six-year stock market life, it’s been a disruption machine — at least for its luckless shareholders.
The latest proof? Its letting wing. Despite chipping in less than 10 per cent of revenues, it’s taken 21 per cent off the shares — down to just 25p. How come? Well, Purplebricks has just noticed that it’s spent its life breaking Housing Act rules over the info it’s meant to give tenants regarding their deposit: regulations introduced in 2007 to stop landlords snaffling the cash. And failure to hand tenants the proper docs within 30 days allows them to claim back up to three times the deposit.
It’s what chairman Paul Pindar, the ex-Capita boss, calls a “technical issue”, noting that “nobody’s lost out”. But it’s still delayed the half-year figures, due today, with auditor Deloitte now grappling with a “potential” hit spanning an absurdly wide £2 million to £9 million. Hence too, perhaps, why lettings head Helen Ogden vanished through the floorboards a fortnight ago.
Anyway, it’s just the latest carry-on from an outfit that pitched up on Aim at 100p in December 2015. Set on “disrupting the way houses are bought and sold” in a market ruled by Rightmove, Purplebricks did away with costly branches and, for a long time, staff. It relied instead on self-employed local experts. Out went the pricey percentage fees on sales, too, with sellers today paying a flat £999 or £1,499 in London.
Backed by Neil Woodford, the group hit an early purple patch. By 2018, the shares were just off 500p: a palatial £1.5 billion valuation. But maybe the turning point came with February 2018’s “sell” note from ex-Jefferies analyst Anthony Codling. Titled “Buyer Beware”, it reckoned Purplebricks sold only 51.6 per cent of homes listed, not the 88 per cent claimed, yet sellers had to stump up whether it sold the property or not.
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Pindar says Codling’s figures were “wrong”, with the stats still showing an 80 per cent success rate. But since then, dry rot has set in. In May 2019, out the door went founder boss Michael Bruce and with him his expansion into Australia and North America. In came present boss Vic Darvey, with Germany’s Axel Springer building a 26.6 per cent stake. Then up popped the pandemic, which should have been the making of Purplebricks. Rivals were forced to shut branches, while the housing market took off.
Instead, July’s full-year results showed the digital disruptor losing market share, down from 5.1 per cent to 4.6 per cent. Last month came a profits warning, taking a third off the shares, followed ten days later by finance chief Andy Botha walking out. Pindar puts the setbacks down to a shortage of houses to sell and the upheaval from two key changes to the business model: turning 600 workers into employees and giving money-back guarantees if vendors fail to get an offer within 10 per cent of valuation. He still believes he chairs a “quality business”. But its cash balances, partly from extra marketing spend, are down from £74 million to £58 million with nothing to show for it. And now it’s got a lettings bill to come, with Darvey’s job looking to be on ever shakier foundations.
Ask Codling what he thinks of a business now valued at £77 million and he’s particularly taken with Purplebricks’ loss of market share. As he puts it, if the model is going to work, “it should work in a hot, stamp-duty-holiday-fuelled, market. The fact that it did not speaks volumes.” It still looks several bricks short of being a proper disruptor.
Capita falls flat
Capita boss Jon Lewis is never knowingly undersold. But when, in August, he put a glossy spin on the half-year figures, he had ammo to back his claims that his turnaround was about to deliver. There were £2.6 billion of contract wins, net debt down 18 per cent to £894 million and the promise of “sustainable free cash flow” in 2022. The shares rose 11 per cent to 40p.
So his latest update is a proper downer. Covid’s laid low some of the services group’s non-core businesses, notably travel and events, while sales are down 8 per cent to £1.08 billion in the “Experience” wing: home of such thrilling experiences as call centre and admin work for private companies. The upshot? Group sales are up just 0.6 per cent: a quarter of analyst forecasts. Capita’s suffered cost inflation, too, while warning of non-cash write-downs to come.
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Yes, the cashflow, debt and £700 million target for non-core disposals all remain intact. But the shares dived 19 per cent to 36¾p as Barclays analysts took 17 per cent off this year’s profits forecasts and 22 per cent off 2022’s. When Paul Pindar (see above) stepped down as Capita chief in May 2014, the shares stood at £11.40. And even when Lewis succeeded Andy Parker in December 2017, they were still 220p, after adjusting for a £700 million rights issue at 70p. Lewis has got to start proving his turnaround works.
Cash and carry
Sadly, the taxpayer still owns 54 per cent of NatWest. So, we’re all on the hook for the £265 million fine the bank’s run up for its failure to spot Fowler Oldfield’s alleged £365 million money-laundering exploits between 2012 and 2016. In the first criminal prosecution of a UK lender by the Financial Conduct Authority, the court heard how the Yorkshire gold dealer paid cash into 50 branches at a rate of £1.8 million a day. It included £700,000 carried through a shopping centre in black bin liners.
Yes, some staff thought something was up, complaining that deposits had a “prominent, musty smell, indicative of long storage, rather than business use”. Maybe the bank’s former senior management all had heavy colds that week.
