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Thanks Steph,

Quite a bit to digest there but it sounds like the uncertainty is going to prevail for some time.

Hoping for a reply from Steph on this.

I haven't really followed the Brexit story thinking it would all come good in the end but now that I'm seeing it mentioned more and see that it's affecting sales in London and perhaps elsewhere I've paid a bit more attention.

Am I right in thinking everything is sorted and the only thing the UK are saying will stop them striking a deal is having to enforce a customs border between Ireland & Northern Ireland?

Surely they will have to do that if they don't strike a deal?

I'm clearly missing something.

Steph,

This is how Investors Chronicle interpreted the update.

"But in order to reach its target of exceeding pre-tax profits of £50m in the year to March 2019, it still needs to shift 90 open-market units, around 25 of which are priced above £600,000. This is in addition to selling some affordable units and exchanging contracts on further build-to-rent agreements.”

And the company hasn't come out to suggest that interpretation was incorrect.

It's quite bizarre to specifically mention the number of Units needed to meet £50M+ and this pretty much suggests that if they only sell 89 units then they are below £50M.

Analysts were expecting £53M. To improve on FY2018 profits and increase the dividend they need to exceed £46.3M if you are taking the comment on the dividend policy to mean 2018 profits will be exceeded.

TEF have never given guidance for 2020 onwards and Analysts cannot be relied on. All they do is feed a few numbers into their models and the 2020 onwards estimates were made a while back and it doesn't look like the £53M estimate is going to be met.

I was listening to the Analyst presentation from CRST the other day after their warning and they said they'd always based their criteria on what represented a strong market on 3 factors. Low interest rates, high levels of employment and good access to mortgages. They seemed to suggest there is now a fourth factor in London - affordability. They said that property in London is now 14 times the average wage.

It seemed to me that CRST didn't think the only problem they were having was due to Brexit uncertainty and they were talking a lot about partnerships and even affordable housing. They were promising to maintain the dividend at 33p though for two years but their lawyers had advised them to qualify that it was conditional on no material deterioration of market conditions.

In their update, TEF were saying that they are struggling to sell private homes and that it was due to Brexit. They've always said that demand for sub-prime property exceeded demand but comments from Sain about other developers operating wherever TEF are make me wonder whether this is still the case. Especially now that the Government seem intent on putting foreign investors off.

If demand for sub-prime still exceeds supply then I think TEF are a standout investment. If not then perhaps their current rating relative to its peers (RDW & BWY come to mind) is fair given that the crazy HPI London has experienced over the last 6 years has not been seen nationally and that HPI growth is still being experienced in a lot of regions.

I can't get myself excited over BTR, especially now that everybody is going to be competing for whatever funds are available. I'm not convinced TEF have such unique experience to put them ahead of others. I know that CRST have had BRT projects and RDW announced something a little while back.

For what they are worth, updates from Analysts since the trading update...

"Telford Homes (LON:TEF)‘s stock had its “house stock” rating reaffirmed by stock analysts at Shore Capital in a research note issued on Wednesday, October 10th."

"Canaccord Genuity restated a “buy” rating and issued a GBX 500 ($6.53) price objective on shares of Telford Homes in a research note on Wednesday, October 10th."

"Peel Hunt reiterated their buy rating on shares of Telford Homes (LON:TEF) in a research note issued to investors on Wednesday, October 10th."

>Trading in the UK is currently showing double-digit growth year-on-year in monthly instructions

I wonder if it is closer to 10% than 99%?

This is what BWY said 2 months ago. "In addition, higher value homes across the country have, at times, experienced slower sales rates and occasionally required a greater use of incentives, albeit the Group has intentionally limited its exposure at this upper end of the market."

Conditions in their regions could have worsened but they don't have a high degree of exposure to London and have an average selling price of £285K. If they just repeat that it could be taken badly by this market.

This is what they said about the result period to 31st July "As previously reported, the operating margin for the full financial year is expected to be around 22% (2017 – 22.3%) and this, together with the rise in revenue, will result in substantial full year earnings growth."

https://www.afr.com/real-estate/residential/toxic-purplebricks-culture-driving-revolving-door-of-agent-departures-20180925-h15u8g

"He said his manager turned up at his secure ward at the Nepean Hospital with a laptop wanting Mr Duncan to contact his clients from his hospital bed."

"In a statement, Purplebricks admitted it had "fallen short" short of its own standards of striving "to create a respectful and caring environment for all our employees".

Strictly, I bought earlier today but am not sure they will achieve their £50m+ guidance.

The Bild - Oh Dear!

Hi JVSOZ,

>The right model will weather all seasons and cycles to become a great business with a valuation to match.

But the model doesn't have to make a profit in a poor market, just make one in average market conditions. PB were doing fine in year 1 in Oz. A similar Y1 to the one they had in the UK. It took them 2 and a half years before they had a profitable month here in the UK.

Success in the UK is of course no guarantee in Oz and the US.

kramreklaw, have you ever used PB's platform?

Knowing traditional agents I can't see them offering the same functionality. I sold my house with PB and apart from emails to the Post Sales department and an unnecessary telephone call from the LPE to see if I wanted his help negotiating when I received an offer, everything was done via the platform and most of it directly with the buyer. Much more efficient than anything I've ever done through a traditional agent.

I would add that there was a mystery shopping exercise carried out with 30,000 traditional agents a while back and 40% of them didn't even answer their emails.

Itsonlyagame,

For me, the internet didn't really start to become mainstream until about 2004 here in the UK. Can we say that most people over 30 in 2004 could be classed as a bit of a technophobe? That's people over the age of 44 now.

I read somewhere that the average age of a home seller is about 40.

So if that's all true, plenty of potential growth for PB as the smartphone & tablet generation move more into the frame.

Also, if people do gradually move away from traditional agents will this accelerate growth as more of them go to the wall? There must be a lot of them who have had to reduce fees, even if PB aren't always getting the business.

PB are also not going to stand still - they will improve over time. Technology for me is an area that they will always be ahead of the game in.

Of course on the flip side, if the demand for online/hybrid grows so will competition.

Hi JVSOZ,

I'm not sure I agree that the difficulties in Oz are to do with the management. After all the first year was fine.

I was reading over on PIE the other day about a traditional agent who used to instruct their valuers "Just tell them you can get £15,000 more because we have 200 offices, so that covers the fee, it is the negs job to get the price down"

So bad as it is, this is the business that they are in.

Bad publicity isn't good but I imagine there's plenty of positive spin left in PB's armoury.

I still think the market slowdown in Oz is the main cause of the issues. Also, I'd say that being a UK company overseas is a disadvantage whenever it comes to the press, authorities and the consumer. It's not unusual for viable UK companies to fail overseas. Disgruntled LPEs, I would say, being the consequence of a market slowdown rather than the cause of a poor second FY in Oz.

This isn't a comment on whether the company is worth the current SP or not...

There is certainly still growth in market share here in the UK though but growth is now what I would describe as organic rather than what we saw at first which was largely a consequence of growth in the number of LPEs as they moved into new areas and fulfilled what demand was there.

Lots of other factors too such as new technology, increasing average income per instruction, focus on property letting (now 8% of revenue), perhaps lower marketing costs required as market share increases?, accelerated growth as the demographic of homebuyers moves further into the iphone generation.

For me, they are still one to watch.



.

Hi JVSOZ,

In Oz there seems to be no growth in instructions whereas in the UK there is. In the early days in the UK they were growing really quickly. The yearly number of listing rising from 4330 to 19200 to 41000 as the number of LPEs grew rapidly.

Although the signs in Oz were reportedly encouraging at the start this same growth hasn't happened.

You say this isn't market conditions. Why do you think this is?

Lots of negative comments since I last looked.

Oz certainly not going to plan but do they pull out or ride out the poor market conditions, limiting losses in the meantime? They've just entered the Canadian market in difficult market conditions and look to have picked up that business at a bargain price. They've got plenty of cash in the bank and they didn't have trouble raising £125M when Oz was already a bit of a mess so I think they'll ride out the poor market conditions.

Something interesting from the annual report (that wasn't in the final results) that may or may not have been discussed here. Apologies if it's already been mentioned:

"Technology will drive long term success for Purplebricks, it will help to delight, excite and surprise customers as we make the process of moving home increasingly simple, straightforward and stress free. It will also
help our people deliver the service with greater ease, making them more productive and as a result more successful. We have previously announced our intention to invest further in technology that we believe will also drive greater revenues, reduce the cost of delivery, optimise conversions and expose our growing brand to a wider audience. We are executing on our strategy and are working towards a launch of the first stage of development towards the end of the first half of the 2019 financial year."

So something new by the end of the month perhaps?

Itsonlyagame,

>There may be estate agents out there who don't give two hoots about trying to negotiate the extra £10,000, but there are a large number who will try.

Assuming there's no difference between the morals of online/hybrid and traditional agents then the fact that negotiating may actually lose a traditional agent their commission, does that not suggest they are actually less likely on the whole to try and negotiate?

Online/hybrid agents don't financially have as much to lose if they try and get more for their client.

I've sold a few properties and every time a traditional agent has put an offer forward to me I have had the feeling they wanted me to accept the offer. Nobody has ever told me to try and get more. My one sale with PB, I had already negotiated the price with the buyer and I asked him to make it through the PB platform. Within 30 seconds I had my LPE on the phone asking me if I wanted him to negotiate on my behalf.

Estate Agents (UK) don't give two hoots to get you £10K more. Risk losing their £3K commission for the sake of an extra £120. Get the sale in the bag and the "sold" sign outside the property is better for their business.

For somebody with a £200K property owned 90% by the bank, that £10K is an extra 50% of the equity in the property.

Estate Agents who charge a percentage are basically taxing you on the full value of your home. I'm not sure how they've managed to get away with it but the signs are that it's not going to change any time soon.

http://www.lse.co.uk/share-regulatory-news.asp?shareprice=PURP&ArticleCode=d9zzptj9&ArticleHeadline=Purplebricks_to_launch_in_Florida

>"It is clear their modus operandi is not to get the highest and best price, but to get the listing and then get the property off their books quickly.

>"This is what happens when you operate with an upfront fixed fee. There's no motivation to even sell because you have already been paid," Mr Reid said.

No motivation to sell but they're getting people to reduce their asking price. Doesn't make sense.