Moving back into property listings website operator, Rightmove PLC (LON:RMV), is the right move after the recent sell-off, UBS believes.
Since June 25, when the shares were trading at around 525p, the stock had fallen as low as 422.35p by last Friday’s close, though it perked up to 434.6p today after the Swiss bank upgraded to ‘buy’ from ‘sell’.
READ: Rightmove downgraded; UBS recommends cashing in on merger mania
Back in July, UBS was among those advising investors to cash in on the merger mania sparked by Silver Lake’s bid for Rightmove’s smaller rival, ZPG (which operates Zoopla). Now, it thinks the sell-off has been overdone.
“We believe features of Rightmove’s model protect it from concerns over Brexit and competition. Specifically, 1) Rightmove operates a sUBScription model that is not sensitive in the short term to transaction volumes and prices; 2) We think vendors will rarely award instructions to agents who do not use Rightmove, and 3) Rightmove’s products are fully integrated with agent workflow and designed to increase share of instructions, a key agent KPI [key performance indicator],” UBS said.
Based on UBS’s forecasts for 2019, Rightmove is trading at 22 times forecast earnings per share, which is 15% below its five-year average.
UBS’s own evidence lab suggests that demand for Rightmove’s product has remained stable since the beginning of the year.
Listing volumes in October were up year-on-year, which UBS suggests means agents’ use of Rightmove remains strong, while data from market research group suggests that growth in traffic on the rival On The Market site has come at the expense of Zoopla rather than Rightmove.
For those who don't see #portaljuggling as a problem.
— Chris Wood (@PDQProperty) October 15, 2018
Same property, same agent, two sets of dates. This agents statistics will now show double the number of listings, double the number of sold stc stats', double the number of 'exchanges' & a much quicker 'list to sold' time pic.twitter.com/GuNROejaqu
Having said that, with weak transaction volumes, limited house price growth, and continued falls in commission rates, UBS expects 2019 to be another difficult year for Rightmove’s customers.
“A possible hard Brexit or change in government policies (e.g., land tax) also carries risk. We expect Rightmove to price less aggressively in 2019 to reflect this reality and maintain good relationships with agents,” UBS said, as it cut its estimate of growth in the average revenue per user between 2019 and 2021 to 8% from 8.5% previously. Thee change feeds through to a downgrade of less than 1% of forecast earnings per share over the 2019-21 period.
UBS has a 12-month price target of 490p. Shares in Rightmove were up 2.9% at 434.6p on UBS’s upgrade.