Purplebricks Drags Down Star Fund Manager As Sales Dispute Rumbles On

The woes at Purplebricks are having a knock-on effect on star fund manager Neil Woodford, whose listed fund has been dragged towards the bottom of the FTSE 250 leader board.

Shares in Purplebricks have slumped by 18% in the past week after questions were raised over its sales figures.

Meanwhile, shares in the UK-focused Woodford Patient Capital Trust have fallen to a low of 77.2p, down from 106p last July.

The trust’s portfolio includes the AA, AstraZeneca and Provident Financial, all of which took a dive last year, as well as Purplebricks.

There are fears that 2018 will be another difficult year for Woodford, who built his reputation on riding out the financial crisis.

Purplebricks said in a statement that it knows of no reason for the share price fall, other than the recent research note published by Jefferies International.

Jefferies questioned the hybrid estate agent’s claim to have sold 88% of homes listed on its site within 10 months. The investment banker said the rate was closer to 51%.

The note, authored by Anthony Codling and Sam Cullen, stated: “Our research sample found that it had sold 51.6% of the homes listed in November 2016 within 10 months, a similar success rate to the overall market, but below the company’s claim of 88%.”

“A review of Purplebricks’ accounting policies raises concerns to us that either its contractual obligations to its customers end with their home being listed on the major property portals or that revenue may have been overstated and deferred income provisions understated in its audited accounts.”

Purplebricks said it contested the findings of the report.

It added: “Jefferies estimated Purplebricks’ completion rate is based on a single month’s data and does not include properties that have completed but have yet to be uploaded to the Land Registry, which can take several months.

“Equally the research does not take into account properties which have exchanged, have reached sold subject to contract (SSTC), or are on marketing breaks.

“Purplebricks reiterates its most recently published sales conversion rate from instruction to sale agreed of 78%, which it believes more accurately reflects its sales performance, although this figure itself does not include those properties in the sales pipeline at the end of the period which will in due course sell.”

Purplebricks said it “firmly refutes” the criticism in the research note of its revenue recognition policy and stands behind both the fully audited results and the accounting policy itself.

Purplebricks charges a flat fee rather than taking a cut of the eventual sale price, meaning the customer must pay the fee regardless of whether the property is sold.

The company’s latest results, published in December, reported that its average revenue per UK customer was £1,138.

Jefferies said using the platform was the equivalent of a “£1,000 coin-toss”, and that the business model had not yet been proved.

Purplebricks issued a trading update stating that it received 6,160 instructions in January 2018, up 66% year-on-year. In January alone, it agreed sales on 4,618 UK properties. Meanwhile, its online market share increased to 77%.

“With a few key months remaining the board of Purplebricks is pleased with progress and confirms trading is in line with the board’s expectations for the year ending 30 April 2018,” the company stated.