Rightmove moving in the right direction

Rightmove will announce its third-quarter figures on Thursday 6 November, and a less aggressive property market is acting in its favour. 

Houses
Source: Bloomberg

Rightmove had a record first half in terms of user enquiries, as the country’s housing market is making a speedy recovery. In July, the online estate agent portal reported a 13% jump in average revenue per advertiser, with the majority of the growth coming from existing customers seeking extra advertising services.

The company now hosts over 19,000 estate agent’s branches on its website; this is a 3% rise on the year. Its first-half revenue was £80 million, and adjusted net income for the same period was £47 million. Both metrics were increases on the previous year’s figures and exceeded analysts' estimates.

Rightmove continues to increase its share buyback scheme, and yesterday the firm announced it had acquired 15,000 shares at an average weighted price of £21.65. The high cash flow of the firm means that a share purchase plan is an effective method of returning cash to investors.

Year to date, the stock is down 21%; in May the share price tumbled after Mark Carney stated that the strong property market posed a risk to the UK’s recovery. In the summer there were whispers of a property bubble, and rumblings from the Bank of England that interest rates might rise sooner than initially expected. Since then, house prices have cooled and the number of mortgage approvals has tapered off. Traders are now expecting house prices to smooth out, and an interest rate hike isn’t on the cards until well into 2015 which should encourage buying of the company’s stock.

Shares in Foxtons Group were knocked back when the London-focused estate agent stated that full-year profits would fall because of the slowdown in the London property market. Rightmove’s share price was barley impacted as its coverage is UK-wide and not just south east England.

We are six months away from the next UK general election, and a recent poll put Labour two points ahead of the Conservatives. If Ed Milliband moves into 10 Downing Street, the so-called ‘mansion tax’ could become a reality; the Liberal Democrats have outlined similar plans. Such a tax is likely to curb top-end house prices which could put pressure on Rightmove’s shares.

Equity analysts are very bullish on Rightmove. Out of the 20 ratings, 11 are buys, five are holds and four are sells, and the average target price is £25.61. It is worth noting that the all-time high is £28.14.

Zoopla Property Group, who listed on the stock market this year, has a less optimistic outlook according to investment banks. Out of the 11 recommendations on Zoopla, seven are buys, three are holds and one is a sell.

Rightmove will reveal its full-year figures in February 2015, and analysts are expecting revenue to be £162 million and adjusted net income to come in at £92 million. Last year the company’s reported total revenue and adjusted net income was £139 million and £81 million respectively; dealers will be listening for any comments on full-year guidance.

The share price has been in a downward trend since the record high in January. With £21 acting as the immediate support, the next level below that is £20. Strong results could push the stock to £23.22, and if that level is taken out the September high of £25.54 would be the next target. 

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