Broker’s warning causes Purplebricks’ share price to drop further

Purplebricks’ share price dived again on Friday after a broker reduced its target price for the stock by 80%.

Analysts from Berenberg said the online estate agent had “flown too close to the sun”.

Purplebricks’ shares ended the day down 7% at 128p, continuing a sharp downward trend for the stock.

Its shares were trading above 400p last May but has since dropped 70% – wiping around £850m off its market value.

Berenberg’s analysts have given the stock a sell rating and a new target price of 80p.

It said: “In our view, the limitations of the upfront fee model are being laid bare and the addressable market is proving much smaller than initially hoped.”

It highlighted the group’s cash burn of around £7m per month and said it will need to either raise money at “a significant discount”, take on expensive debt or pull out of Australia and the USA.

It added: “The estate agents have endured a challenging past few years, suffering as the changing affordability dynamics in the UK housing market resulted in a contracting fee pool as the secondary housing market stagnated. Alongside general market weakness, the emergence of the online/hybrid model has placed additional pressure on fees, further reducing the addressable market.

“We do not anticipate a material reversal of these fortunes in the short term, and forecast the transactional fee pool to continue to decline by 1% per annum, as continued house price inflation is offset by fee pressure and falling existing-home transactions.”

In February, Purplebricks revealed its international businesses were underperforming, causing the group to reduce its revenue guidance by £35m which it expects to be between £130m-£140m.

Co-founder Michael Bruce took over the day-to-day running of the group’s American business following the departure of its US chief executive Eric Eckardt, while UK chief executive also left the business.