The Swiss bank, which significantly cut expectations for the low-cost digital estate agent’s performance earlier in the early weeks of the UK coronavirus lockdown, said recent industry data suggests that the housing market is making a strong recovery.
Purplebricks “should benefit given its transaction-based nature”, which means its earnings are highly levered to a UK market recovery.
As a result, UBS now expect £83mln of revenue in the 2021 financial year, 10% ahead of the current consensus forecast.
Further potential upside exists, the bank’s analysts said, if the 25% instructions growth seen in July sustains till the end of the year, calculating that a 10% change in instructions would increase underlying profit by £4mln or 38% for the next financial year.
“Purplebricks’ national online model means it doesn’t incur branch and admin costs of an equivalent sized network,” the analysts said.
“We estimate in the long term this gives them a 20% cost advantage versus traditional agents, which means they can charge significantly less to consumers while offering a similar service.”
As a result, they expect Purplebricks to start gaining market share again in a stable UK market to reach 8% in the long term, versus 7% previously and 5% now.
Other positives for the company included Purplebricks net cash of £66mln with “good access to liquidity” post the sale of its Canadian business, plus expected benefits in future from innovation in technology, marketing and new pricing models with a focus on driving growth.
UBS upgraded Purplebricks to a ‘buy’ recommendation and lift its price target to 100p, versus a share price that closed at 66.6p overnight.