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Rightmove - profits and dividends up again

George Salmon | 1 March 2019 | A A A
Rightmove - profits and dividends up again

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Rightmove plc Ord GBP 0.001

Sell: 634.60 | Buy: 635.00 | Change -6.60 (-1.03%)
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Rightmove has announced 11% growth in operating profit, following a 10% increase in revenues.

The final dividend of 4p per share is 11% up on last year.

Chairman Scott Forbes announced he will leave the board in May 2020.

The shares fell 4.6% on the news.

View the latest share price and how to deal

Our view

Rightmove provides an online portal to connect buyers and sellers, and earns its revenue by charging fees to agents looking to access a wider audience of potential buyers.

While it doesn't sell houses itself, to sell a house, the popularity of the site means it pretty much has to be on Rightmove.

As the number one destination for buyers, the group has long held the upper hand when negotiating time comes round. That's helped it increase the prices it charges estate agents for years. And since it's just managing a website, those higher prices drop straight through to profit. High margins and low capital requirements make for an attractive and cash generative business model.

All being well, there should be further to go on pricing. A decade or so ago, agents typically spent around £2,500 per office per month on print media. Rightmove's fees are currently a shade over £1,000 a month.

A flagging property market is hurting estate agents, which is seeing some close, and others struggle. But Rightmove charges on a per office basis, and for your average agent, it's an expense that can't be spared.

Perhaps a bigger threat is the new digital disruptors which are muscling in on the market. This is adding to the agents' problems. As a result, the number of agencies signed up has started to drop.

Rightmove is plugging the hole by winning business from new home developers and investing to broaden the services on offer. New analytics and data-based tools are proving popular, with many customers tacking extra products onto existing subscriptions.

Overall, we're confident Rightmove can keep growing. Expectations for continued growth support the reasonably lofty rating of 24.2 times expected earnings, and while the prospective yield is a relatively low 1.5%, the policy of paying out all its excess cash as either buybacks or dividends means the payout should rise in the future. Remember though, there's no guarantees on dividends.

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Trading details

Total revenue for the year was £267.8m, boosted by average revenue per advertiser (ARPA), which grew 9% to £1,005 per month. Sales of higher value packages, and membership fee increases were the main drivers of this.

The number of agents using its services remained flat at 20,454. An increase in new home developments is helping offset a 2% decline in the number of high street agents using Rightmove.

With costs increasing broadly in line with revenue, margins were little changed at 75.9%. That saw underlying operating profit rise 11% to £203.3m.

Net cash fell from £20.9m to £15.8m, as returns to shareholders through dividends and buybacks rose. £55m was paid in dividends (2017: £49.6m), and the group repurchased £113.5m of shares in the year (2017:£90.8m).

Traffic to Rightmove's website was up more than 4 per cent to almost 132m visits a month.

The group thinks the UK online property advertising market will continue to grow, despite Brexit uncertainties. It said: "Rightmove is not materially impacted by the property market cycle except in the most extreme circumstances."

Find out more about Rightmove shares including how to invest

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.