Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
I don’t need to tell you that 2021 hasn’t been a good year for many businesses. On/off lockdowns have blighted the economy and countless businesses have folded. Others have had no choice but to adapt. Those in the property sector though haven’t had the same cause to complain on either front. For them it hasn’t been business as usual, more like a business boom.
Thanks to the stamp duty holiday, coupled with the surge in demand for space and a better work/life balance, parts of the country that rarely see brisk property sales saw properties being snapped up in record time and at top prices.
The pandemic has proved to be very good for property related companies. Total property sales will reach 1.5 million according to property platform Zoopla, making the past year likely to have been the strongest for home-buying activity since at least 2007.
And online estate agent Purplebricks (PURP) for one, benefited from an “exceptionally strong” period for the UK housing market in 2021. That has allowed it to make significant investment in its business and transform its business model - introducing new pricing and a simplified proposition alongside a new operating model.
But this is where it gets interesting because the very real question now is whether it can build on that - and prove all that investment worthwhile (with cash reserves now around £58 million as opposed to £75.8 million a year ago) - even if there is a sustained slowdown following the end of the stamp duty-fuelled boom and in the face of potential increased consumer caution as we head into 2022?
Purplebricks says new instructions have slowed significantly in recent months. Not for lack of buyers, but a lack of sellers. It estimates that new instructions are approximately 23% below the same period last year.
And as a result it expects instructions for the first six month of its financial year to come in around 22,000 from 35,387; that is down almost 40% from a year ago. It seems uncertainty that has blighted the rest of the economy has now landed on the property sector, and as a result operating profits are expected to come in lower than previously forecast.
Purplebricks’ medium-term guidance remains unchanged, and the group is expected to be able to deliver annual revenue growth in excess of 20% in the medium-term. And its eye is still on achieving 10% market share, from the current 4.6% market share of properties sold.
But there are rumblings that it is losing market share more rapidly than its competitors; especially those in the more traditional property market space. And the steep fall in its shares on the back of last month’s trading update won’t have gone unnoticed by investors. Its shares have lost two-thirds of their value this year.
Is Purplebricks a work in progress or a newbuild that is already starting to crumble? Perhaps more will become clear when Purplebricks posts its half year results. They were due this week but have been postponed after the group warned it could face costs of up to £9 million following a “process issue” around deposits in the lettings management business.
More on Purplebricks Group
Five year performance
(%) As at 8 Dec
Past performance is not a reliable indicator of future returns
Source: FE, total returns in GBP as at 8.12.21
Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
Share this article
Market news today - Contrarians sense a turning point
What’s driving your investments this week?