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Rightmove a 'sell' for Shore Capital as teeters at "tipping point"

Published: 09:57 01 Nov 2019 GMT

Rightmove PLC - housing
The UK housing market is firmly in the doldrums

Rightmove PLC’s (LON:RMV) shares fell on Friday after Shore Capital felt a tipping point has been reached and downgraded its recommendation to ‘sell’.

The FTSE 100 company’s stock had risen 12% since the start of August, extending its five-year gains to almost threefold, but at this level is being valued at more than 30 times full-year earnings, with a dividend yield of 1.2%.

These numbers compare to equivalent average figures of 17.4x and 3.2% for the 27 other UK-listed media companies under Shore Capital’s gaze, and so “cast a spotlight on several areas of downside risk” for Rightmove.

READ: Rightmove keeps revenue and profit chugging along despite fall in agency numbers

Having observed that a long period of sustained and substantial inflation for Rightmove’s charges, ShoreCap said estate agents “are likely to prove increasingly resistant to paying more - particularly in view of the highly competitive nature of the residential property market”.

“It also seems likely that the increasingly apparent impact of Brexit uncertainty on consumer behaviour could feed through to a more cautious approach towards marketing spend,” the ShoreCap analysts said, also noting the fresh profit warning from housebuilder Crest Nicholson that raises concerns over declining confidence amongst new home buyers.

Rightmove’s interim results in the summer saw agent numbers decline by 3% and the potential “tipping point” is tilting further, management expected more departures during the second half and ShoreCap forecasting a 3% decline in agent numbers for the full year and another 0.5% for 2020.

“Whilst we would not generally expect agents to entirely de-list from Rightmove for financial reasons, we do think that there is real potential for them to opt for more basic, lower cost listings packages to reduce their overheads and/or divert spend to other lower-cost portals with the intention of increasing their reach and profile and, crucially, improving their ability to secure listings.”

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