U.K.’s Purplebricks Heads for Record Drop as Flat-Fee Model Hit

(Bloomberg) --

U.K. estate agent Purplebricks Group Plc is heading for its biggest share drop on record after a profit warning that cast further doubt about its unusual business model.

The Solihull, England-based company, which charges a flat fee whether a property is sold or not, fell as much as 38% after warning of a drop in business as a tax break for buyers came to an end. 

“Supply in the market has fallen as we slowly adjust to a below normal level of activity following a period of successive lockdowns and the end of the stamp duty holiday,” Chief Executive Officer Vic Darvey said in a statement.

Analysts including Jefferies LLC had previously raised concerns that the model may hurt the company more during a downturn than traditional estate agents that charge sales-based commissions. Purplebricks is the worst performer among real estate peers in the FTSE AIM Index in 2021.

New instructions in the six months through Oct. 31 fell 23% compared with the same period last year, Purplebricks said Thursday.

Some analysts remain positive.

“We still believe that the group can return to profitability in first half of 2023,” Citigroup’s Ross Jobber wrote in a note Thursday, “Under this scenario, the shares look significantly undervalued.”

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