Purplebricks shares are now in the bounce zone
17th August 2021 08:01
by Alistair Strang from Trends and Targets
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After a terrible four months, Purplebricks Group is making changes to its business, but what will the market think of the idea?
News of a change to Purplebricks Group's (LSE:PURP) business model looks fascinating and we wonder if this shall prove pivotal in arresting the decline of the share price.
Already, there’s a heck of an argument promoting the concept of a bounce before 60p and the share price, trading at 62p at time of writing, is already effectively in the bounce zone. The surprising thing comes from reading commentary on what the company intend.
Apparently, their plan is to create 600 new jobs, simply by changing the status of their property agents from self-employed to employee. This seemingly attractive idea has a couple of caveats. Those folk currently self-employed will need to apply for their existing jobs, and there is no certainty of being accepted. In addition, if successful, the new employee will be on a six-month probation period. Any existing property agent who employs staff for admin will also need to make them redundant.
The change in concept is fascinating, doubtless infuriating many who’ve enjoyed a self-employed secure lifestyle as they’ll be aware the only reason Purplebricks are making this movement is to improve company earnings. After all, no corporate body likes to see ‘their’ profit being diluted!
An eyebrow can be raised with this behaviour, thanks to experience with the major oil companies in the last decade of the 20th century. Each corporate entity really hated the idea of their self-employed retailers making money, in some cases a lot of money. Eventually, decisions were made to turn petrol retailers into petrol station managers, once they’d successfully been through an interview.
If we fast forward to the present, very few of these smaller petrol stations remain open and virtually none of the “successful” manager applicants remain. This corporate initiative, to be blunt, removed initiative from the entire petrol retail network with many stations shut, due to falling revenues. Throughout the UK, the landscape is littered with old petrol station plots, no-one keen on buying the land due to the potential of historic ground contamination.
We suspect the markets shall assume Purplebricks have the right idea. Should the share price accelerate beyond 74p anytime soon, we calculate the potential of an initial ambition at 84p. If bettered, an attempt at 109p looks very possible, a price level which looks like it’s currently auditioning as a glass ceiling. Only with closure above 109p dare we feel some strong potentials shall make themselves known as 167p works out as a sensible longer term hope.
Conversely, if it all intends go wrong, below 60p currently risks reversal to 46p with our secondary, if broken, calculating at a bottom of 25p. We cannot calculate below such a point.
Source: Trends and Targets. Past performance is not a guide to future performance.
Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.
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