Rightmove PLC (LON:RMV) shares fell after bearish notes from analysts at Berenberg and Shore Capital, with the former saying it would it be “very optimistic to assume everything will be fine from here”.
Following a 50%-plus rebound since mid-March, the FTSE 100 group’s valuation has risen to around 32 times forecast 2021 earnings per share, earnings which are broadly expected to be little changed from last year’s.
However, analysts at Berenberg said they believe there are “material risks to the financial health of estate agents” when the UK furlough schemes end and the stamp duty holiday ends at the end of March next year.
“These risks add to an industry already struggling pre-COVID-19 (with numerous branch closures), and will add further pressure on either Rightmove’s pricing potential and/or agency customer numbers,” the analysts said in a note to clients on Tuesday.
A trading update from Rightmove earlier in August, which showed robust agent numbers, was “not a fair reflection of the underlying situation”, Berenberg said, as most agency are staff furloughed and other government reliefs are still in place, with Rightmove also providing 75% discounts to estate agency customers.
“Near-term discounts are papering over the cracks, in our view, and both cyclical and structural headwinds will resurface sooner rather than later.”
Similarly, Shore Capital's media analyst said he was of the view that the negative economic impact of COVID-19 “will become increasingly evident over the coming months - creating a significant headwind and making it difficult for the company to rebuild its pricing structure”.
While a record levels of agreed house sales has provided a boost, the Berenberg team noted that agents will only receive cash for these transactions on completion, which in normal times takes a few months, but government support and Rightmove’s discounts are reducing imminently.
Trade press reported were cited that suggest bottlenecks have appeared at mortgage lenders and conveyancers, which is felt likely to further prolong the moving process and so add to the near-term cash constraints of agents, even before any possible housing market downturn due to the economic fallout from COVID-19 or at the end of the stamp duty holiday.
In light of the “substantial uncertainty” ahead and “clear evidence” of the cyclicality of Rightmove’s business, both sets of number-crunchers believe a materially lower share price multiple is warranted and both reiterated their ‘sell’ ratings.
While Berenberg's price target was increased to 400p from 385p this compares to Monday’s close price of 631.4p.