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Rightmove - Growth continues

George Salmon | 28 July 2017 | A A A
Rightmove - Growth continues

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Half year results show revenue increasing 11% to £119.5m, with underlying operating profit also up 11% to £91.0m. In a weak overall market, the shares dipped slightly on the morning of results.

Our view

Rightmove was set up in 2000 by four big estate agency chains, and quickly established a dominant position in online property search, making its website a must-see destination for buyers.

The group believes that a decade or so ago, agents typically spent around £2,500 per office per month on print media. Although agents' overall advertising budget is lower these days, Rightmove has consistently eaten into print media's share of advertising revenue, and now generates revenues per agent of £911pcm.

There are some concerns over the stability of the housing market in the UK. Estate agents, the group's primary source of revenue, are coming under pressure. However, the group's charging structure, where agents pay a fixed fee per office, per month, should provide some insulation.

Rightmove is by far the UK's biggest and most popular property site, so for most agents the cost of being on Rightmove is an expense that simply can't be spared. Therefore, provided agents don't start closing offices, and Rightmove maintains its position as the go-to portal, the group can continue to grow.

The business is very high quality, with low capital requirements, operating profit margins of over 75% and a proven strategy for growing sales, profits and returns to shareholders. The prospective yield is 1.3%, but analysts are expecting double digit percentage growth for at least the next 3 years.

The shares are trading at around 25.4 times expected earnings, compared with a long term average of 22.6.

Half year results:

In both the dominant Agencies and smaller New Homes businesses, increased spending on additional advertising products and higher prices contributed to revenue growth, helping to push average revenue per advertiser (ARPA) up 10% to £911 per month. The group also saw a small increase in customer numbers, which rose 1% to 20,358.

Operational highlights:

  • Traffic increased 3% to 131.8m hits per month, with total time spent on site averaging over 1bn minutes per month
  • The total number of UK residential properties advertised rose to 1.1m
  • The half saw the launch of the 'Rightmove Discover' and the 'Where Can I Live?' features

Rightmove remains debt free, and had cash balances of £13.6m at the period end. £72m of cash was returned to shareholders during the period, through share buybacks and dividends. The interim dividend, due to be paid on 3 November, has been increased 16% to 22p per share.

CEO Peter Brooks-Johnson said: "With consumers and customers becoming increasingly digital our clear market leadership coupled with the value of our products and data positions us well for the future."

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.