Small Cap Value Report (Fri 29 Sep 2017) - PURP, APGN, PIER, ITM

29th Sep '17 by Graham Neary

43 comments 16304 reads

Happy Friday!

Purplebricks (LON:PURP)

Share price: 377.625p (+1.4%)
No. of shares: 272 million
Market cap: £1,027 million

This unusual estate agency issues a bullish headline for its AGM statement:

Strong progress across three continents, on course to meet expectations

UK revenues are still guided to £80 million for the full year (ending in April) and H1 revenues should have more than doubled.

The US launch is underway, having begun on 15 September.

Quick excerpt from the CEO comment:

We are relentless at working to ensure we understand our customers' needs and meet their expectations and are proud of our 27,000 Trustpilot reviews and our NPS score of +80. Considerable progress has been made across the Group in the financial year to date and we are confident in our future and in meeting the Board's full year expectations."

Indeed, I too have referred to the online customer reviews when weighing up the pros and cons of potentially buying shares in Purplebricks.

However, it turns out that Purplebricks has been unhappy with what has been written about it online, when it's less than favourable.

The independent review website AllAgents suspended its coverage of Purplebricks following threats:

Due to repeated threats of legal action forcing the removal of content and negative reviews from our website, we have regrettably taken the unprecedented step in suspending the PurpleBricks profile page until further notice (as of the 18th September 2017).

It has even taken down the original notice of suspension, following more threats:

Not only, it appears, does Purplebricks not like what our reviewers say about them on allAgents, but they're also rather miffed about what we wrote about the suspension of the Purplebricks profile on our site. So, due to the further threat of litigation from Purplebricks, we've decided to remove it, despite it being entirely factually correct.

And how's this for a rhetorical blow:

In our humble opinion the thousands they're paying their lawyers to write to us might have been better spent responding in a positive way to the criticisms raised by our reviewers.

Ouch!

I already felt that Purplebricks was overvalued, but my conviction is growing. Companies should be able to take criticism, and allow customers to discuss their experiences without trying to shut down debate.

Shutting down debate is…

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Graham Neary

29th Sep '17

Hi Ram, covered it for you.

Cheers, Graham

xxx

Could I second the request for comment on the REDS 'offer'...

Ramridge

Hi Graham Brighton Pier (LON:PIER) many thanks for covering it. You are showing a few facets of this business that I hadn't considered.
Even with LJ at the helm, is this the right sector to be in right now? I tend to agree with you, probably not.

matylda

Thanks Graham - Much appreciated

Hi Joe, thanks for bringing that to my attention, I'd missed it. A very interesting announcement and I've covered it for you.

Regards

Graham

Jenny Williamson

"I do think there is a degree of anger that this upstart is taking their business and destroying the profit pool. "

You bet! Hence the need for PURP to defend itself. This is an entire industry under threat that has been ripping of customers for years- any wonder they don't like it?
Up front fees ensure commited sellers and an efficient model. It bring joy to my heart as I drive around seeing ever increasing numbers of SOLD signs on Purplebricks boards. ;-)

jonesj

For me, the whole Purplebricks reviews debate hinges on whether they are objecting to real negative reviews or fake ones.
Traditional estate agents would certainly have an incentive to try & talk down Purplebricks, due to the threat to their model. So there could be an abnormal number of fake reviews.

I suppose it all depends on how honest the traditional estate agents are. From experience, SOME of them are highly dishonest, so I would suggest they are very capable of writing fake reviews. Whether that happens is another matter.

In the case of sites like Trip Advisor, it's much easier to distinguish good from fake reviews, as, for example, real people may stay at multiple hotels & review lots of them. Fake reviewers create a profile & write one review with 5 stars for everything. Few people will sell multiple properties.

Perhaps talking to real customers might be a better way to evaluate Purplebricks customer satisfaction.

I took profits on Purplebricks months ago. I don't see how all the US property portals would sit back & allow Purplebricks to grow there without competition.

ambrosia

ITM Power

as an engineer i just dont see the future in hydrogen, particularly for cars, you still need to have an electric engine so why not just have an elec car

I've also seen people getting behind and carried away with green technology that doesnt work, its as if whether it works or not isnt really the point. For instance if you put renewables into a newbuild property its more likely to get planning, there is no plan to maintain or use what ever green tec it is, its only there to ease the planning consent

Beginner

Regarding Applegreen (LON:APGN) , I regularly pass, and occasionally use, three of their larger and longer established sites. They are always extremely busy. The attraction is less the fuel than the food offerings. White vans flock in for breakfast, then parties come through for the various other offerings.

The company is long established, and has recently expanded to include fuel depot and refining interests in Ireland. They now supply bulk fuel to other retailers.
As it is the price seems a little rich to me, but you cannot deny this is a growth company, with a decent niche business, and very experienced management. One to watch indeed.

HumourMe

as an engineer i just dont see the future in hydrogen, particularly for cars, you still need to have an electric engine so why not just have an elec car

Range and refueling are the main barriers to adoption for pure electric. If hydrogen refueling becomes easy, then I'll happily burn it and contribute to the over-saturated atmosphere when my battery loses charge. However, we already have a hydrocarbon infrastructure, which I suspect will be the complement of choice for many hybrids, until the battery issue is solved and hydrogen based solutions may just be too late to the party.

bwakem

"For instance if you put renewables into a newbuild property its more likely to get planning, there is no plan to maintain or use what ever green tec it is, its only there to ease the planning consent "

I agree. My house built in 2011 has 2 air-source heat pumps. Very 'eco' according to marketing blurb. In reality they are very unreliable, breakdown often and cost a fortune to run.

GrahamF

The Australian figures in the trading statement from Purplebricks (LON:PURP) caught my eye. 12m for Aus versus 80m for UK full year guidance still on track. That would seem to be mightily impressive fir Aus considering the very short time it has been running.

But can they actually make money doing this? If the marketing spend can reduce as a percent of sales the answer is probably yes. But with increased online competition in the UK and the USA market to support this reduction may be a long way off.

This is not a stock I hold. With Aus going so well I think I would hold on a while longer if I did hold these share but it looks too risky to buy in now. Need to wait longer to see how the USA goes.

Hi, it looks like a worthless piece of news to me since the directors have rejected the claim that they have even been approached, the AP Systems website is not professional enough to make it look like it could seriously bid for Redstoneconnect (LON:REDS), and the company accounts specifically for AP Systems Holdings Limited show that it was dormant until December 2016 and only has paid-up capital of £10k.

laurie

This is the explanation for the extra shares=
Brighton Pier (LON:PIER) from RNS dated April 26, 2016
Eclectic Bar Group plc is pleased to announce that at its General Meeting today, held in connection with the Placing, the acquisition of The Brighton Marine Palace and Pier Company and the proposed change of name (the "Proposals"), as announced on 8 April 2016, all Resolutions were duly passed.

Accordingly, the Acquisition and Placing are expected to complete tomorrow, 27 April 2016, and the Company's name will change to The Brighton Pier Group PLC (the "Enlarged Group") and the Company's TIDM will change to 'PIER'.

The 15,454,546 New Ordinary Shares have been allotted and issued pursuant to the Placing, credited as fully paid, and will be identical to and rank pari passu in all respects with the Existing Ordinary Shares.

The number of Ordinary Shares in issue and the total voting rights in the Enlarged Group following Admission will be 31,677,287.

30th Sep '17

Hi laurie - excellent. That explains it perfectly.

hamwork13

On Purplebricks' profit potential it helps to look at the business with the longest track record separately (UK). The operational gearing is impressive. (disclosure I hold)

2016 turnover £18m margin GM 57%
Admin costs £9.6m
marketing £12.9m

EBIDA £-11.7m

2017 £43m turnover GM 56%
Admin costs £9.6m
Marketing £14.4m

EBITDA £0.75k

2018 forecast turnover £80m

Broker expectations on where margin and admin expenses will be for '18 show a marginal increase in admin costs and marketing whilst retaining a similar GM, with a forecast £12m EBITDA.

It therefore looks like the UK could be generating significant profits as a standalone business by April 2018.

In my view its quite uncommon to see a business increase sales YoY so dramatically without a significant increase in admin and marketing costs.

fwyburd

1st Oct '17

Thanks Graham. I don't really understand AP's motives unless its purely attention seeking - does this happen often?

Trident

Re: ITM Power (LON:ITM).

I can't recall where I read it but I was surprised to hear that ITM are used by German based gas suppliers. In essence the German suppliers use ITM systems to mix hydrogen with natural gas for domestic use, which reduces the carbon element of the gas, and I guess overall means that less natural gas is supplied as a consequence.

It strikes me as a great way to mix the existing market for hydrocarbons, and the potential lower carbon footprint future. Whether and how profitable it is for ITM I have no idea.

cig

2nd Oct '17

The natural gas network can also be used to transport hydrogen (inject near the hydrolysis point, filter out near point of use).

Yes, it happens from time to time in my experience.

Cheers

Small Cap Value Report (Fri 29 Sep 2017) - PURP, APGN, PIER, ITM

Purplebricks (LON:PURP)

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Graham Neary

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