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Rightmove - dividend suspended, guidance withdrawn

Sophie Lund-Yates, Equity Analyst | 27 March 2020 | A A A
Rightmove - dividend suspended, guidance withdrawn

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Rightmove plc Ord GBP 0.001

Sell: 566.20 | Buy: 567.80 | Change 4.80 (0.85%)
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Rightmove has announced it will be suspending the final dividend this year, which will save the group around £38.3m. In light of the ongoing disruption, management have withdrawn all financial guidance for this year.

The group previously said it will be offering a 75% discount to all customers for the next 4 months, which came as the number of property transactions failing to complete rose and the group anticipates changes to rental behaviour.

The discount is expect to hit revenues by £65-£75m in this financial year.

The shares fell 3.7% in early trading.

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Our view

Coronavirus will hurt Rightmove's progress this year, but we think the longer-term attractions still exist. Of course, that's dependent on how long, and how deeply the current economic disruption cuts.

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

The site is Googled more than "property" and 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. 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.

Once things return to normal, 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 little under £1,100 a month. Historically, a slowdown in the housing market wouldn't have mattered to Rightmove, as it charges on a per office basis. The number of houses being bought or sold wouldn't have affected Rightmove collecting its fee - so long as estate agents weren't closing. But that looks to be changing.

Estate agents are struggling - digitally disrupted from various angles. Costs rising just as digital estate agents like Purplebricks steal customers by offering agency services at a fraction of the price. Rightmove's customer base is under threat and that's seen the number of agencies signed up start to drop. The ongoing coronavirus pandemic is likely to pile yet more stress onto estate agents, especially as the government is now advising people to delay moving houses.

Rightmove had been plugging the hole by winning business from new home developers and investing to broaden the services on offer. Over the short-term at least this revenue stream is going to be disrupted, with many of the housebuilders facing major disruption to sales because of the pandemic.

Overall, Rightmove's dominant market position should stand it in good stead once conditions return to normal. However, earnings will take a sharp drop this year, due in part to the discounts the group's offering its customers, and the dividend has been suspended. The full extent of the damage will depend on how long the disruption lasts, and how quickly the economy recovers.

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Full Year Results - 28/02/20

Rightmove reported an 8% increase revenues for the year to £289m, with underlying operating profits rising by the same amount to reach £219.7m. That reflects strong growth in business with new home builders and continued uptake in Rightmove's higher priced subscription packages - offsetting a decline in the number of active estate agents.

The final dividend of 4.4p per share is 10% up on last year, taking the full year dividend to 7.2p.

Average revenue per advertiser (ARPA) finished the year 8% higher at £1,088 per month. This reflects continued growth in advertising from new home builders, uptake in more expensive subscriptions and price rises.

The number of agents using its services dropped 3% to 19,809, reflecting a decline in the number of smaller agencies offsetting strong growth in partnerships with house builders. Rightmove expects this trend to continue in the short term, despite acknowledging an optimistic start to 2020 following the election.

Underlying costs increased in line with revenue and margins remained constant at 75.9%.

Rightmove finished the year with a net cash balance of £36.3m, up from £19.9m last year.

Website traffic was 2% higher over the year, averaging 135 million visits per month - driven by mobile traffic which was up over 14%.

The group completed its acquisition of Van Mildert, landlord and tenant protection specialist, in September 2019.

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