Member Info for cyberduck

Rapper, 28p dividends paid for the year. At a SP of 550p this is slightly higher than a 5% yield. EPS for the year was 85p which covers the dividends 3 times.

>it is a lot more difficult selling homes at a sensible price

That's what people have been saying for 6 months and more. All the builders apart from CRST have reported a healthy market, good results and good forward sales.

Just looking at Barclays Stocbrokers estimates for earnings - up from 70p in 2017 to 80p for 2018. So they're factoring in a slowdown from the previous 27% growth so what are the market expecting I would ask. RDW actually achieved 85p earnings! About 20% earnings growth, smashing the Analyst's estimates.

Forward estimates by the analyst from here on in do suggest lower profitability. I'm not sure what the market is expecting. They are going to have to catch on at some point that profit growth is sustainable, nobody is actually saying it is from what I can see.

28p dividend covered 3 times gives a yield of over 5%.

Just how bad do the market expect things to get?

Jimmy_88,

>So on that basis, you only value a SP on earnings? You completely ignore any other figure or aspect of a company's development?

I'm valuing the UK part of the business which is 4 years old and is making a profit. It is a recognised valuation method to value such a company on future earnings. Hardman even did it when the UK was growing fast but took earnings from 5 years ahead. Don't forget that the Hardman Report was given out at the AGM so sanctioned by the company themselves :) Ever heard of p/e ratio? prospective p/e ratio? PEG factor?

For a business that doesn't make a profit but is growing turnover quickly you get people who will value on turnover but this doesn't apply in my opinion to the UK part of the business. It's gone past this stage. Listing numbers looking as though they're growing at around 8%, that's not what you call fast growth.

I suggest you come up with a more appropriate method if you think you have one. Sounds to me like you don't actually understand the different recognised ways to estimate SP value :)

I have, and still do, refuse to be distracted by your repeated attempts to avoid any attempt at substantiating your original claim. Let's remind you what it was:

"I would disagree with you that the current SP factors in any international success though and would actually say the opposite."

which was in response to my claim "So for me, eventual success (profitability) in the USA is hugely factored into the SP and if that starts to look uncertain the SP will suffer drastically."

Take a look at those words "eventual success (profitability)". Sounds like a pretty good way to value a company. Look past the loss making growth phase. I can't believe you are still arguing that the market price doesn't factor in overseas sucess to any extent. I'm actually embarrassed for you.

Can't wait to see your next post avoiding that very simple matter.

All insurance companies do is work out the overall loss and add more on top for themselves.

So if it's the landlord paying the insurance premiums they are effectively paying for the damage by tenants plus more on top.

Or does the tenant get to pay the insurance?.

https://www.propertyindustryeye.com/tenant-fees-bill-returns-to-parliament-amid-calls-for-further-crackdown-on-agents/

"Mayor of London Sadiq Khan has called for a cap on security deposits of three weeks’ rent rather than the six weeks proposed in the legislation"

I'm sure TEF's overseas investors & potential BTR partners will be delighted if that proposal is adopted.

Oz has now been in operation for just over 2 years whilst the USA is a year old in a couple of weeks.

Not really comparing like for like and the data is only approximate but it looks like OZ was further forward after a year than California is. Data for California from Zillow which I know understates (Some time back I cross checked with PB listings via Google which amounted to about 10% more than was listed in Zillow.). The Oz listing numbers were calculated using PB's Oz website.

So I've got something like 2300 listings for Oz after a year.

Zillow was showing 374 active listings for California and 345 sold since launch.

One big difference is that Oz had around 74 LPEs after a year. Zillow has 37 agents listed.

See https://www.zillow.com/profile/Purplebricks/

>In addition, you talk about international success being factored in but you regularly value the SP based on earnings (another idiotic move on your part). As there is a negative earnings figure for both USA and Australia due to marketing costs, how on earth can you come to the conclusion that success is being factored in on the basis of negative figures?

Again, didn't read your post past that line. You are just so far off understanding that it's not worth reading any more.

I'm estimating a value for the UK part only based on the earnings from 2021. Why would I include anything from the USA, especially the losses today?

My whole argument is that the SP reflects overseas success to a degree. If that doesn't happen then the SP will be hammered. You are saying the SP doesn't factor in international success so in that case if overseas fails completely then the SP would remain the same. All other things being equal.

I'm sure you have a mental block. Perhaps you're just plain stupid?

If A is UK value per share and B is overseas value per share then the company value per share is A + B. The market price is the markets position on current value.

So we have A + B = £3.00

Based on estimated UK earnings in 2021, I'm estimating A at £1.44 which make my estimation of B to be £1.56.

On the other hand you say B is 0 (zero) which means your estimate of A is £3. So come on, let's see how you come to that estimate. Unless you've come up with something in the parts of the posts I haven't read then I think it's about time you did. I've substantiated my claim and all you want to do is avoid the actual point.

As we are 2 months away from the end of H1 2019 I thought I'd take a look back to the H1 2018 report.

Things have clearly not gone as expected since then in the UK & Oz.

After achieving UK turnover of £39.9M (up 118%) in H1 the company increased their guidance for the full year to turnover of £84M. So expecting £44.1M in H2. The actual H2 turnover was £38.2M. The report was released in December so actually missing a 4-5 month forecast by 13%.

The report was extremely bullish :

"Number of UK Local Property Experts rose 107% to 650 as at 12 December"
"Number of Australian Local Property Experts rose 600% to 105 as at 12 December"
"We currently have 650 UK Local Property Experts which is an increase of 107% on the same period
last year. We will recruit further in the new year as required to meet the growing demand in the spring
market."
"We are expanding our Australian management team and building further infrastructure for growth. We currently
have 105 Local Property Experts across five states. We are fast building a brand, with unprompted brand awareness reaching 10%, a level which it took the UK two years to reach. Our aim is to replicate the success that Purplebricks is having in the UK."

It seems clear that the expected demand for PB didn't materialise. The number of UK LPEs susequently increased to around 740 but has since come back to around 668 (last time I looked). The number of Oz LPEs is now 84.

It will be interesting to see what sort of growth PB can achieve in H1 2019 to warrant such a high valuation.

Itsonlyagame,

It's not easy to work out how many property listings there are per year for the market in total. The Hardman report from September 2016 stated "Total transactions total some 1.4mpa. For FY17E we model 41,000 instructions to Purplebricks, 3.0% total UK market share. We estimate this grows to 4.1% FY18E"

If those figures were correct and still are then PB would require about 135,000 listings a year to have 10% of the "new instruction" market.

For the year to the end of April 2018 they claim 64,376 instructions up by 56.2% on the year before. My own proxy of their daily listings for the 4 months since the end of April 2018 show about 8% growth compared to the same 4 months in FY2018.

If they maintain this growth rate it would take about 10 years to reach a 10% market share in the UK.

Like you say it's all very interesting. The original story was one of scale-ability. Increase income a lot faster than costs with Hardman suggesting marketing costs remaining more or less constant 12.9M in 2016 to 14.5M in 2022 while turnover increased from £18.6M to £143M in 2022. The actuality in terms of marketing costs were that in 2018 they were 21.4M, rising from 14.4M in 2017. For the 2019 FY the BOD say there will be an increased marketing spend.

To measure how scale-able the model is, come the H1 results to the end of October all eyes will be on the increase in turnover and the increase in marketing costs required to achieve this.

Jimmy please stop putting words in my mouth I have never said "a target current price of 200p would be warranted". This is what Hardman said when they valued the UK & Oz part of the business back in 2016. I did however say "The natural conclusion being that £2 was too high a valuation" but of course this was in regard to what Hardman was saying about the UK & Oz business value. Profits from the USA were not part of the valuation then and both the UK & OZ have not performed as well as they forecast.

>So you often imply that the share price should be under £2

No I don't, the whole discussion is about whether the current market price factors in overseas success. You said it doesn't I said it did. "I would disagree with you that the current SP factors in any international success though and would actually say the opposite."

Now that I've provided a valuation for the UK business, a very generous one I'd say, it's time for you to dispute that valuation if you disagree and provide a valuation of your own which supports your argument that the current market price (about £3) doesn't factor in any overseas success.

Of course you can't do that can you? So you are deflecting and trying to misquote me. Telling me to put my money where my mouth is in regard to something I didn't say. Hilarious and sad at the same time.

I look forward to you trying not to deflect and now addressing the original point but I'm not holding my breath because that's what you do isn't it? Try and change the subject when you can't substantiate something.

The simplest method Hardman used in their report released during FY17 was to look 2 years forward at FY19, then discount back at 20% a year. So I’ll do the same with an estimate of PB’s UK eps for 2021.

In the Hardman report they produced estimates for EBITA and EPS. They don’t say how they get from EBITA to EPS but they have forecasts of EBITA/EPS for the UK & Oz as follows for 2018 onwards: 9.2/2.4, 28.2/8.6, 51/15.6, 72.3/21.8 & 86.2/25.1. So a declining ratio. Let’s be generous again and use the most flattering ratio of 3.43. Let’s also be generous and ignore the fact that there are a lot more shares in issue than back then.

So, as we are only interested in the UK we will estimate UK EBITA for 2021 and apply the ratio.

Using a proxy, I’m currently seeing UK instructions growing at about 8% a year for the first 4 months of the 2019 FY so let’s assume this growth rate continues. There’s also average revenue per instruction growth. This slowed from 21% for FY 2017 to 7.4% for the FY 2018. I’m going to assume 5% per year. The number of UK instructions for the 2018 FY according to PB was 64,376. Now there’s always been a small discrepancy between turnover and the number of instructions x average income per instruction which I assume is from letting. This was about £3m in 2018. I’m going to leave it at that for 2021 because I’ve been generous elsewhere  Revenue per instruction in the 2018 FY was £1168.

So 2021 estimates of average revenue per instruction:

2021 : 1168 x 1.05 x 1.05 x 1.05 = 1352 (approx.)

Estimates for the number of instructions:

2021: 64376 x 1.08 x 1.08 x 1.08 = 81095.

So 2021 revenue = (1352 x 81095) + 3M = £113M (approx.).

Apply the generous 59.1% margin (2018 = 57.7%) and you get £66.78M gross profit.

PB have said their marketing costs will increase in 2019 but let’s be generous again and assume the same admin & marketing costs as 2018 in 2021, which were about £41M. This leaves about £26M profit from operating activities.

So doing the same as Hardman & ignore share based payments and we have EBITA of £26M. Apply the generous EBITA to EPS ratio and we end up with 26/3.43 = 7.58p EPS for 2021.

Apply the generous Rightmove p/e ratio of 27.5 and discount back to today at 20% per annum and we have 7.58 x 27.5/(1.2x1.2) = 144.75p as an estimate of the value of the UK business per share today.

Jimmy_88, there you have it. What do you think? You weren’t prepared to accept a rough & ready valuation because the report was from 2016 but bring the data up to date and we get exactly what I was implying - that the UK business valued in a generous (my opinion) way is worth about £1.44 for each share.

In the Hardman report they deemed it appropriate to value PB on a similar p/e ratio to Rightmove (RM), a company which has grown actual earnings by an average of 52.66% over a period of 12 years. This was despite the fact that PB had never made a profit but were increasing turnover substantially from a small base and predicted to do so by at least 30% each year at least until 2022. This seems a rather generous valuation, especially considering they forecast 100000 listings per year by 2020 and this doesn’t look like happening.

Anyway, let’s continue with that method and we can discuss whether it’s over-generous later. They used RM’s consensus earnings estimates for the next year and calculated the p/e ratio. I don’t have RM’s consensus forecast but Barclays suggest the prospective p/e ratio is about 27.5 at the current share price.

Jimmy_88,

Absolutely hilarious that it's impossible to pin you down. Let's make a deal. Let's sort out this disagreement over whether overseas success is factored into the current SP and I'll answer any one of your questions. Amazing though that you put words in my mouth and then try and get me to bet on it :) When have I ever say the SP should be less than £2?

I see you still haven't posted a valuation for the share. How do you make all these statements about whether the market price factors in overseas success if you don't have an idea what the shares are worth? I look forward to seeing a valuation from you.

Jimmy_88,

Ducking & diving again :) Not going to pick holes in your posts as this just gives you scope to pick something to reply to and ignore the main point.

Did you come out with a valuation in either of those 2 posts?

I'm looking for the valuation you were using to determine that when you bought the shares they were undervalued by the market. What did you pay? I see your first post is on 5th March 18 "Seems to be a bit of a downward trend but I'll happily hold and consider a top up if it goes down too much. Happy to hold for the next year or 2 anyway.". The shares were around £4 back then.

Like I say, there are different ways to value. Which method did you use when you bought your shares? Or if you bought on gut instinct and have subsequently done your research (that's what I did) what is your current valuation and valuation method for the UK part of the business. Remember you said that the current £3 SP doesn't factor in overseas success.

>So you often imply that the share price should be under £2

No, that the UK part of the business & Oz should be valued at less than £2 using the same method as Hardman and the failure to live up to expectations since then.

I'll be back with a valuation. I need to look up a few things and come up with some estimates.

Once we have our valuations, we can discuss which method is the most appropriate.

Jimmy_88,

You really are as slippery as an eel. Not sure why you are referring to overseas, you were saying the current SP didn't factor in overseas profits. Or were you just talking about profits this year?

There are different ways to value a company and I note you have not come forward with any of them.

The valuation by Hardman was based on future earnings. Let me go away and get you an updated valuation using the same method seeing as you can't get your head around it.

Let me remind you what Hardman said. It really shouldn't take too much to make some mental adjustments but seeing as you just dismiss it outright I'll go away and update the calculation.

The estimated value based on 2020 estimated earnings was as follows...

"Three years from now, the current EPS in FY20 is 15.6p, with EPS growth in the following two years of 26% CAGR. Placing Purplebricks at that stage on the same PE as Rightmove (see point below), the price at that stage would be 15.6p x 26.9 = 420p. Discounting back the 420p for three years gives the current price basis on this methodology. If discounted at 20%pa, the current equivalent is 243p. At the current early stage of the Australian development, we would add a risk weighting to this, but in round terms a target current price of 200p would be warranted – by this methodology, which we consider to be robust."

Also from the report, based on 2019 estimated UK/Oz earnings (that's this year!) "Undertaking the exercise on 2019E EPS of 8.6p the current share price indication is 209p. 8.6 x 26.9 / (1.2)2 = 161p.".

Whilst you're at it, what do you think eps for 2019 will be from UK/Oz given the current levels of trading? Anywhere near 8.6p? I'll give you some help making a rough calculation. For 2019 Hardman estimated a gross profit of £53m with £13m of marketing costs and £9.7m gross profit in Oz with £7m of marketing costs. For the 2018 FY they achieved £45M gross profit with £21M marketing costs in the UK and £6.3M gross profit in Oz with £11.4M marketing costs.

I'd really be interested in seeing some figures of how you calculate your valuation for PB (UK). I'll come back with something in a day or two using more up-to-date estimates and data.

>You've referred to a 2 year old valuation on a company

>These things haven't been taken into consideration so how you can somehow reverse calculate the SP on the basis of that report is beyond me.

Quite simply because it was a price forecast based on earnings in 2020. Follow the thinking through knowing that 2020 is not going to come up to the figures used for the valuation and all other things being equal and you cannot argue that the SP is worth £3 and also say "I would disagree with you that the current SP factors in any international success though and would actually say the opposite.".

The natural conclusion being that £2 was too high a valuation. Surely you can see that?

If not, then please suggest how you value the UK operations at £3. Or are you now agreeing that valuation factors in international success?

I suggest you read the report. The key to the levels of profitability the estimate was made on was to increase turnover but keep marketing costs level. In fact advertising costs have grown from the approx. £13M to around £20M. These projections were given out at PB's AGM. Data was provided by PB. Estimates were by Hardman.

>If our BOD can achieve average EPS growth after 03/19 of 5 to 7.5% ,they will be doing very well

Terrace,

Can I presume then that with falling EPS growth you predict a falling SP too? That was what I understood you to be saying yesterday when you were referring to other builders.

Not sure if this helps decipher what TEF are talking about when they refer to "doubling" every 4-6 years.

http://www.cityam.com/article/1385599874/telford-homes-aims-double-size-business-five-years

"nonetheless by raising the money and spending it now when there are opportunities we will be able to deliver double the units completing a year and double the size of the business in the next five years"

Or does that make it even more confusing?

They say they sold 450 homes back in 2013 so I'm assuming they weren't suggesting doubling units every year, that would mean after 5 years they would be completing on 14400 units by 2018. I think they meant doubling the yearly number of units every 5 years.

So I'm presuming when they now talk about "doubling" that they refer to doubling the number of units every 4 to 6 years.

The Greystar deal was talked about some time ago and they talked about typical BTR margins. I think it's prudent to think in terms of 12 to 13% margins.

I think with these deals that TEF are currently looking at there will be a lot of competition from builders for the institutional money. OK TEF perhaps have an advantage in the areas that they have been building because of a relationship with the planning departments but I would imagine you are in a pretty strong negotiating position if you're an institution.

Consensus Broker estimates (FT) for 2020 are EPS of 57.66 up from 55.7p. An increase of just 3.5%.

>we can expect most homebuilders to announce a halt in EPS growth, at anywhere near the levels they have enjoyed in recent years.SPs are reflecting this reality and they may have a little further to fall before fully catching up with the game.

Terrace, I've been trying to get to grips with this sector over a year now and don't have the benefit of being there when things happened which I know from my own experience is a huge advantage. Just looking back at data isn't any substitute because you can't remember what other variables were at play.

However Strictly has also been in the sector a long time now and says almost the complete opposite to you "Any examination of the long term track records of the more consistently performing house builders, over three decades or more, together with the share prices attached to those performances, suggests that there is not necessarily any obvious rhyme or reason for doubling then halving then doubling again of share prices which would be typical of what has occurred from time to time."

For builders in general, what periods in time do you associate with EPS growth slowing and falling SP's other than the 2008 financial crisis?

I've identified for BWY a period in time from 2004 up to 2007 where the eps growth sequence went 20.2%,4.5%,3.3%,6.2% but the SP's taken on 1st Nov (3 months after year end and shortly after results announcement) went 482, 724, 1056 and 720. So for that period there was no drop in SP when eps growth dropped.

I have data for BWY from 1997 onwards and other than the period following the financial crisis I don't have data for a period where I can say eps growth has shown a clear pattern of decline.