Purplebricks tumbles as Berenberg double-downgrades, butchers price target

Purplebricks was under the cosh on Friday after Berenberg double-downgraded the stock and took an axe to its price target following its profit warning in February.

In a note on estate agents, Berenberg cut its stance on Purplebricks to 'sell' from 'buy' and slashed the price target to 80p from 470p. It said that after initial success, the company is suffering from the numerous challenges of slowing growth in its core UK market, deteriorating performance in Australia and the US and the exits of both the UK and US CEOs.

"In our view, the limitations of the upfront fee model are being laid bare and the addressable market is proving much smaller than initially hoped," the bank said.

"Having flown too close to the sun, with operations in five countries and cash burn of circa £7m/month, we believe the group will be forced to either seek additional equity at a significant discount or a doubtless expensive debt facility; or abandon the Australian and US operations and retrench to the UK and Canada."

Berenberg upped its stance on Foxtons to 'hold' from 'sell' and nudged up the price target to 60p from 50p. It argued that while the near-term outlook is tough, Foxtons remains the premier operator in the sector and stands poised to benefit from any recovery in transactions.

It added that the company's balance sheet remains healthy and it is a potential take-out target.

"While the outlook for transactions remains somewhat bleak in the near term, the group remains highly geared into any uptick in transactional volumes. A return to 2012 volumes levels implies EBITDA of £26m, 10x our 2020 estimate and implies a potential takeout value of 110p."

Berenberg also upgraded its recommendation on Countrywide, to 'buy' from 'hold', chopping the price target to 10p from 95p.

It said that following a period of sustained mismanagement, the stock is investible again.

"Although recent performance has been extremely poor, many of the wounds were self-inflicted. With a new management team and a refreshed, but reassuringly simple, strategy in place, we feel the risk/reward dynamic is now more positive."

On the sector more broadly, Berenberg said it does not expect a market tailwind in the short term, while lettings remains a longer-term growth market.

"The estate agents have endured a challenging past few years, suffering as the changing affordability dynamics in the UK housing market resulted in a contracting fee pool as the secondary housing market stagnated. Alongside general market weakness, the emergence of the online/hybrid model has placed additional pressure on fees, further reducing the addressable market.

"We do not anticipate a material reversal of these fortunes in the short term, and forecast the transactional fee pool to continue to decline by 1% per annum, as continued house price inflation is offset by fee pressure and falling existing home transactions.

At 1400 BST, Purplebricks shares were down 7.7% to 127.40p, while Foxtons shares were up 0.6% to 64.18p and Countrywide was down 1.2% at 7.40p.