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Agencies & People

Will Purplebricks ever make a group profit, asks investment guru

Edward Sheldon of The Motley Fool ponders future of the hybrid agency as its backer and former City star Neil Woodford struggles.

Nigel Lewis

A leading investment advice website has predicted that Purplebricks may take years to achieve profitability and may even fail to reach it ‘ever’.

The shock prediction has been made over the Easter weekend by investment guru Edward Sheldon of The Motley Fool as part of his analysis of Neil Woodford’s Equity Income Fund.

The blog refers to the overall group behind Purplebricks which includes its profitable UK division but its loss-making US and Australian operations as well as investments in German and Canadian hybrid estate agents.

Woodford was one of the early funders of Purplebricks’ early growth and provided much of the initial cash to pay for its huge marketing push during the first few  years.

But his fund has taken a battering over the past year, partly because Purplebricks’ share price has tanked by up to 60% recently as City investors have baulked at its slowing UK growth and problems in the US and Australia.

Acquisition costs

US property industry analyst Mike Delprete recently revealed that the company spent nearly £12,000 to acquire each customer in the US, much more than it derived from any primary or secondary income streams earned from the customers.

Woodford’s enthusiasm for Purplebricks is beginning to look misplaced. Sheldon points out that the ‘star’ fund manager’s investment vehicle is down 6.6% year-on-year compared to a FTSE All-Share Index that has risen by 7.2%.

Sheldon (left) also claims that “investors are pulling their money out of the vehicle in droves”.

“While Woodford’s investment strategy could turn out to be validated in the years ahead, in my view, the portfolio looks quite risky at present,” he says.

April 23, 2019

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