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Woodford pick Purplebricks slips after BBC probe

BBC investigation into consumer complaints dents soaring share price of online estate agent Purplebricks, backed by fund manager Neil Woodford.

 
Woodford pick Purplebricks slips after BBC probe
An eight-month monster rally in Purplebricks (PURP), the online estate agent backed by fund manager Neil Woodford, came to an abrupt halt this week as the BBC broadcast two programmes investigating customer complaints about the company. 
 
Purplebricks shares fell 8% to 436p on Wednesday after BBC Radio 4’s You and Yours accused the company of exaggerating levels of instructions and sales figures, although the shares have recovered some of those losses today, rallying 4.2% to 457p.
 
The feature alleged that Purplebricks had repeated claims that had previously been banned by the advertising regulator. BBC One Watchdog followed this up yesterday evening with an interview with the company's chief executive Michael Bruce.
 
The programmes also criticised Purplebricks’ deferred payment services. The company responded by claiming that the disclosure and terms of the deferred payment facility, provided by Close Brothers, were clear and transparent.
 
In a statement the board said a review by the Property Ombudsman and the Trading Standards Institute had identified no issues, and the group had received complaints relating to the payment terms from only 0.2% of its customers.

Admired disrupter

Woodford, the country's best known fund manager, owns 27% of Purplebricks through his company Woodford Investment Management.

The Citywire A-rated veteran investor has backed Purplebricks since it floated on the stock market in December 2015 and has repeatedly praised its ability to disrupt traditional estate agency businesses.

In June, following a positive trading statement, he said: 'We think that the market has been slightly behind the curve with Purplebricks and is only now starting to appreciate the company’s success in muscling its way into a position of market dominance.

'We continue to believe that there is much more room to grow for the company in the months and years ahead.'

Since December the shares have reflected Woodford's optimistic assessment, soaring 337% from 105p to 458p.

The acceleration in the share price has turned Purplebricks into the second biggest holding in Woodford Patient Capital Trust (WPCT ). Before its recent slide it accounted for nearly 11% of the £860 million fund and had helped it through a difficult time as some of its other investments faltered. It also accounts for 2.2% of his £10.1 billion Woodford Equity Income fund.

Others to benefit include investors in smaller company fund manager Giles Hargreave, who is Citywire AA-rated and holds Purplebricks in his Marlborough UK Micro Cap Growth fund. 

Old Mutual Global Investors also holds the online estate agent across its UK Mid Cap , UK Select Smaller Companies  and UK Dynamic Equity funds.

'Misleading' figures

The BBC also alleged that it had seen emails that Purplebricks had sent to existing and prospective customers repeating the claim that sellers could save £4,158 on average by using them to sell their property – a figure that the Advertising Standards Association had ruled as misleading in 2016.

‘The BBC drew attention to examples of a standard email format that inadvertently still included the savings figure. The group immediately removed this reference and apologises for this oversight,’ Purplebricks explained in a stock exchange announcement.

Bruce was keen to highlight that his company currently stands as the most positively reviewed estate agent in the UK.

‘We seek to satisfy and surpass our regulatory obligations at all times, and where we find circumstances where we have fallen short we seek to rectify these situations at the earliest opportunity,’ he added.

Analysts at the company's broker, Peel Hunt, described the BBC claims as a 'storm in a thimble'.

'We believe the answers provided to the deferred payment question were clear and the savings example has already been rectified. We don't believe the issues raised will hinder the group's future progress,' it said to reassure investors. 

Jefferies' Anthony Codling was unconvinced, sticking with his 'underperform' rating of the stock, although the analyst said he was comforted by Bruce's promise to be more transparent.

'Hopefully now he will disclose how many of the homes listed by Purplebricks are actually sold by them, rather than just the fees they earn from listing the homes whether they sell or not.

'Purplebricks tell us this figure is commercially sensitive, but it is a KPI [key performance indicator] diclosed by all of the other UK estate agents we cover,' he added.

Purplebricks’ shares have bounced back, up 4% to 460p today, so Peel Hunt may be right. 

Woodford faces challenges

Purplebricks' wobble tops a challenging period for Woodford after setbacks for a few of his stocks.

On Tuesday AA Group (AAA) saw its share price come under pressure after it fired its executive chairman Bob Mackenzie for gross misconduct and lowered its full-year forecasts, sparking a 13% share price fall in one day.

This followed last week’s announcement that AstraZeneca (AZN) had experienced a setback in its Mystic cancer treatment trials, which caused the pharma company’s shares to tumble.

Consumer credit company Provident Financial (PFG), which appears in the Woodford Equity Income fund, saw its shares come off after it issued a profit warning last month.

17 comments so far. Why not have your say?

AJW

Aug 03, 2017 at 15:21

Woodford can't catch a break at the minute. I suspect he'll be proven right in the mid-term, however.

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SDRL

Aug 03, 2017 at 16:02

Woodford trades too much.

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Mark Stringer

Aug 03, 2017 at 16:41

He needs to change his name to try and prevent it being linked to every financial ailment known to journos.

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BazzaH

Aug 03, 2017 at 17:05

He has a fair chunk of UTW as well.

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Chris Phillips

Aug 03, 2017 at 19:03

My wife has a shares ISA with Terry Smith equity income that seems to be performing much better. Is it time to bail out of Woodford equity income?

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BazzaH

Aug 03, 2017 at 19:19

Terry Smith has a good reputation and good performance and has a more international exposure (mostly USA) but the reason I don't like his funds is too many tobacco companies, not something I want to invest in and which have not performed very well recently. Also the US market is rather high. Woodford has not performed so well in the last 2 years, maybe it will turn around?

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SDRL

Aug 03, 2017 at 19:49

Woodford owns tobacco stocks.

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BazzaH

Aug 03, 2017 at 20:26

Yes I know. But Fundsmith has 2 in the top 6 largest holdings, think he had 3 in top 10 but that seems to have changed now.

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Franco

Aug 03, 2017 at 22:04

Woodford buys companies he hopes will become winners. Terry Smith buys companies which have already won.

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Tony Airey

Aug 03, 2017 at 22:29

I "get" the internet, having been actively involved in it for over 20 years, but I don't "get" Purplebricks. Maybe it's just me.

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PAS

Aug 04, 2017 at 05:36

@SDRL - What is the PTR on Woodford's funds compared to the sector averages then?

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Novgorod

Aug 04, 2017 at 11:10

Woodford has so many holdings -- maybe too many (unlike Terry Smith / Nick Train) -- so is bound to get caught out with duffers as well as some stellar performers and Purple Bricks has certainly been stellar. I suspect they'll recover from their recent set back and are rolling out their model in international markets, so could be a long-term growth story.

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Jansy

Aug 04, 2017 at 16:00

I bought Purplebricks at 135p a year ago and some more at 200p in February. I have just used them on a difficult house sale, their personal service is fantastic and I have saved over £7k on the cheapest high street agent. What's not to like?

I have also held WPCT for three years but the key here is "patience"!!

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BazzaH

Aug 04, 2017 at 16:12

Yes I don't think PURP will be a problem, it may not be a smooth ride though.

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Dennis .

Aug 05, 2017 at 09:17

I pulled everything out of Woodford funds when he became part of the HL marketing machine.

I was involved in some of the early internet project back in the late 90's and estate agencies were the ones that everyone predicted would go digital as it was such an obvious move. It's strange that here we are 20 years later and it hasn't really happened. People (even young people) do a quick search on rightmove or zoopla but still go at a physical agency.

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Sinic

Aug 05, 2017 at 09:36

Too many people on this forum expect straight line success and seem shocked when 'celebrity managers' have periods of mediocre performance. Woodford's record speaks for itself; so he's in a bit of a trough at the moment, but I have every confidence he will recover. I invest for the longer term and don't over react to short term under performance.

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Dennis .

Aug 05, 2017 at 09:48

Remember that in the long term we are all dead, Woodford has been off the boil for too long in my opinion and also remember that he makes money from you investing in him regardless of the success of his funds.

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