Influential investor blog The Motley Fool has backed the so-called ‘third portal’ OnTheMarket to smash Purplebricks’ share price, suggesting the relative newcomer ‘could do very well’.
Writing for TMF, experienced private investor Alan Oscroft outlines his theory and why he thinks OnTheMarket could be set to shine, while Purplebricks needs to address some fundamental issues.
Purplebricks …. Purple Patch ?
Oscroft says that Purplebricks’ share price seemed to be following something of a predictable pattern, where people were seeing the shares rising rapidly and, not wanting to miss out, piling in without really understanding the company’s valuation. That, in turn, was pushing the share price up further. But that common sense eventually sets in, the fad passes, and the share price reduces towards a rational long-term valuation.
He suggests that, to some extent, Purplebricks has fallen victim to its own marketing hype, which could have led to it becoming overvalued. He also believes that the no commission angle is something of a red herring, and that people selling their home are more likely to weigh up the costs of all the alternatives side-by-side, rather than whether the cost is charged by fee or commission or whatever.
Oscroft also suggests that Purplebricks’ focus on international expansion has come at the expense of concentrating on proving its business model and profitability to investors in the UK first.
The Motley Fool blogger does agree that Purplebricks are still at the “sharp end” of the online estate agent business, even if small compared to the traditional market – while pointing out that the early innovators are rarely the ones that make the biggest profits.
Oscroft points out that OnTheMarket, launched in early 2015 and admitted to the AIM three years later, has had a “fiery start” to life as a listed company, with its shares gyrating between 102p and 185p since flotation and, at time of writing, a share price of 141p, for an overall loss of 5%.
However, he believes that OnTheMarket’s recent tie up with Belvoir Lettings could be a development to watch.
The collaboration between OnTheMarket and Belvoir will see Belvoir list all its residential sales and lettings on OnTheMarket.com. In addition, Belvoir and OnTheMarket will benefit from shared marketing. Oscroft says he believes this could be more cost effective than an extensive TV advertising campaign like that being pursued by Purplebricks.
Oscroft concludes that he wouldn’t personally buy OnTheMarket shares now, but that it is very much one to watch.
“At the interim stage there was £24.3m in cash on the books, but forecasts suggest a pre-tax loss of £26.4m for this year and next, combined.
“I think OnTheMarket could do very well, but while there’s a likelihood of more funding being needed, I have no way of working out a fair valuation for the shares. I’m watching.
“Would I buy OnTheMarket shares myself? Right now, no. But that’s simply because there are no profits on the horizon yet.”