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Rightmove confident but brokers wary of subdued housing market

The general view seems to be: Good company operating in a sector that is currently under a cloud
Houses for sale
The average revenue per user from the new homes segment increased by £76 year-on-year to £1,286

A solid set of numbers from Rightmove PLC (LON:RMV) was not enough to please analysts that remain sceptical over the UK housing market.

The property listings website operator said average revenue per user (ARPA) in the first half of 2018 was up £76 year-on-year to £987 and that it expects the full-year ARPA growth number will be around £80.

READ: Rightmove reports 10% profit rise and ‘record number’ of customers

Revenue in the six months to the end of June rose 10% to £131.1mln from £119.5mln in the corresponding period of 2017. Profit before tax climbed to £98.1mln from £87.54mln the year before.

The interim dividend was bumped up to 36p from 32p at the interim stage last year. The Rightmove membership base saw a modest increase to 20,450 at the end of June from 20,427 at the end of 2017.

Site visits were up 5% year-on-year, averaging 139mln a month. The time spent by visitors on the site was up 4% year-on-year and averaged 1.1bn minutes per month – that’s in total, not per user …

"Home hunters continue to turn to us first to search and research in the only place you can see virtually the whole of the UK property market. Our restless innovation delivers the fastest and easiest way to 'find your happy' from the 1.2 million UK residential properties on Rightmove leading to consumers sending over 22 million enquiries in the period,” bragged Peter Brooks-Johnson, the chief executive officer of Rightmove.

“The continued stable membership numbers and our sUBScription advertising model, together with the strength of the Rightmove offer for both customers and consumers, give us confidence in delivering expectations for the current year despite muted sentiment towards the UK property market," he added.

Mixed ratings

The shares eased 94p to 4,998p after Peel Hunt downgraded the stock to ‘reduce’ from ‘hold’, albeit after increasing its target price to 4,700p.

Liberum Capital Markets, meanwhile, stuck with its ‘hold’ rating and 5,000p price target after what it described as a “solid” set of first-half numbers.

“We see this as, fundamentally, a very solid company but, until it can demonstrate accelerated ARPA growth via new services, which may be difficult in a muted market for estate agents, we feel the valuation is at fair levels where it is now,” the broker said.

Rightmove’s management spoke of the “muted sentiment towards the UK property market” and Liberum echoed this, citing the “muted outlook for estate agents generally” although it opined that Rightmove is protected from any shift to the online estate agents through its charging structure for online sites.

UBS stuck with its ‘sell’ recommendation and 4,900p price target, saying that the first-half performance did not, as anticipated, surpass expectations enough to justify a re-rating on valuation grounds.

The stock trades on a multiple of 26 times its projected 2019 earnings per share and that implies revenue growth needs to be sustained at around 9% over the next 10 years to justify its current valuation, whereas UBS thinks growth is likely to be closer to 7% or so per year.

“We continue to view the implied revenue growth as overly optimistic at this stage given a depressed property commission pool, potential rental disruption and limited visibility into Rightmove’s product pipeline”, the broker said.

--- adds comment from UBS ---

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Rightmove PLC Timeline

February 12 2015

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