Simon Downing has invested more than £250,000 in Purplebricks (LON: PURP) just before the end of the financial year in April. He acquired 257,884 shares at 97.3p each. Downing has spent nearly £740,000 on the 891,384 shares he owns in Purplebricks.
In March 2018, Downing was appointed as an independent non-executive director of Purplebricks when Axel Springer invested £125m at 360p a share. Axel Springer still has a 26.5% stake. At the end of 2018, he bought 133,500 shares at 148p each.
At the end of 2019, Downing became senior independent non-executive director. Last August, he acquired 500,000 shares at 57.5p each.
Estate agency Purplebricks is a former AIM star, but it failed to grow fast enough to warrant its heady rating. Failed attempts to build a similar business in Australia and the US further dented investor confidence. It has sold the Canadian business acquired in 2018.
Management refocused on the UK market, where it has a 4.8% market share. Trading has improved from May 2020 following the original Covid-19 lockdown, helped by the stamp duty holiday.
The level of marketing spending can be varied, but this will also dictate how fast the company can grow.
Interim revenues fell 6% to £44.2m, while lower admin and marketing costs meant that a loss of £2.3m was turned into a profit of £4.3m. The lack of loss from a joint venture, which became an associate, and a related gain on deemed part disposal of £1.4m, also helped. There was also a £700,000 income from government assistance.
Capitalised technology development spending was £900,000, down from £1.4m, which is below the amortisation charge. There was £75.8m in cash at the end of October 2020, helped by £32.4m net raised from the sale of the Canadian business.
Consensus forecasts are revenues of £87.8m and underlying pre-tax profit of £2.4m, although these forecasts date back to the end of 2020. This profit is expected to fall next year. Cash is forecast to decline from the interim figure and then build up in the following years.
Simon Downing is showing his confidence in Purplebricks, which has only just moved into profit. The brand is strong and there is scope for increasing market share.
Cash accounts for around one-quarter of the market capitalisation of £312.9m, but the valuation seems high given the minimal profit being made. The share price is around one-fifth of its all-time high.
There could be scope for forecast upgrades given the strength of the property market. At 102p a share, there is probably limited short-term upside and Downing is probably taking a long-term view.