Purplebricks tumbles again as it hits back at Jefferies

Shares in Purplebricks tumbled again on Friday after ending the previous session down 7.5%, a move the online estate agent put down to a Jefferies note.

Shares in the stock continued to fall even as the group defended itself against the note, as analysts agreed that putting out a statement was probably not the best move.

The company said it knows no reason for the share price fall other than the Jefferies note, in which the bank has a price target of just 94p on the stock and an ‘underperform’ rating, and disputes Purplebricks' claims over how many homes it sells.

“Our research sample found that it had sold 51.6% of the homes listed in November 2016 within 10 months, a similar success rate to the overall market, but below the company's claim of 88%,” Jefferies said.

“Purplebricks contests the findings of the Jefferies research report. Jefferies estimated Purplebricks' completion rate is based on a single month's data and does not include properties that have completed but have yet to be uploaded to the Land Registry, which can take several months. Equally the research does not take into account properties which have exchanged, have reached sold subject to contract, or are on marketing breaks.”

The company reiterated its most-recently published sales conversion rate from instruction to sale agreed of 78%, which it said more accurately reflects its sales performance. However, it added that this figure itself does not include those properties in the sales pipeline at the end of the period “which will in due course sell”.

Purplebricks also refuted criticism in the research note of its revenue recognition policy and said it stands behind both the fully audited results and the accounting policy itself.

Jefferies said in the note: “A review of PB's accounting policies raises concerns to us that either its contractual obligations to its customers end with their home being listed on the major property portals or that revenue may have been overstated and deferred income provisions understated in its audited accounts.”

The company also put out a brief trading update on Friday, saying instructions last month were up 66% year-on-year to 6,160. In addition, agreed sales for January were 4,618, while the group’s online market share rose to 77%.

Purplebricks said it has now sold and completed on over £10bn of UK property, while the Australia business continues to build and remains on track and the US is proceeding to plan.

“With a few key months remaining the board of Purplebricks is pleased with progress and confirms trading is in line with the board's expectations for the year ending 30 April 2018.”

IG analyst Chris Beauchamp said: "Purplebricks’ defence of its model after Jefferies sell note may make the management feel better, but the image that is created does the company no favours. Better to suffer in silence and let the performance speak for itself."

Neil Wilson, senior market analyst at ETX Capital, said the statement has just highlighted the Jefferies report even more and the lack of clarity.

“They are now in a bit of a hole as unless they can really verify the 78% sales rate then everyone will assume Jefferies is closer to the truth - otherwise why not just publish all the data,” he said.

At 1315 GMT, the shares were 5.6% to 426.80p.