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Rightmove downgraded by UBS on valuation grounds

Published: 11:01 18 Mar 2019 GMT

rightmove
UBS said upside potential for the firm’s shares depended on growth in its “addressable revenues”, namely housing transactions rising and an uptick in price inflation

Rightmove PLC (LON:RMV) has been downgraded to ‘neutral’ from ‘buy’ by UBS on valuation grounds as the investment bank said the market was now “pricing in realistic assumptions” about revenue growth at the property listing website.

In a note, analysts said upside potential for the FTSE 100 firm’s shares depended on growth in its “addressable revenues”, namely housing transactions returning to peak levels (which they were 35% below in 2018), accelerated house price inflation, and estate agents passing on some marketing costs to vendors like charging for featured listings on the site.

READ: Rightmove revenues jump 10% as per advertiser earnings top £1,000 per month

However, on the opposite side of the coin UBS said there was downside risk if a slowdown in transaction volumes led to “material” closures of estate agent branches, with the company already expecting some closures in 2019 that would lead to flat membership in the year.

The bank also upped its target price to 500p from 490p, saying the current share price indicated the group would grow its average revenue per advertiser (ARPA) per month by an average of £97 per year over the next ten years.

While UBS thought this was “broadly achievable”, it could not retain its ‘buy’ rating, which carries an implied upside of over 10%, as that would require average monthly ARPA growth of £122 per year and it did not have “sufficient visibility over Rightmove’s product pipeline to justify this scale of acceleration”.

Rightmove’s shares have risen around 4.9% since the start of March after it reported a 10% jump in revenues for 2018 and its ARPA topped £1,000 per month on the back of increased website traffic.

In late-morning trading Monday, Rightmove shares were down 1.6% at 492.5p.

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