The housing market might be under pressure and I wouldn’t touch buy-to-let with a bargepole right now. But that doesn’t seem to be a problem for property portal Rightmove (LSE: RMV).
Make the right moveÂ
The £4.47bn FTSE 100-listed business has just reported a 10% increase in revenues to £143.9m in the half-year period to 30 June, with underlying operating profit also up 10% to £111m.
Underlying basic earnings per share are up 12%, from 9.1p to 10.2p, and investors have been reaping the rewards both in share buybacks and dividend increases. Rightmove returned £54m cash to shareholders via both vehicles in the period, even if this was down from £76.9m in the same period last year.
Pass the portal
Rightmove remains the number one UK property portal, with 1.1m residential properties. The really exciting figure today is that average revenue per advertiser (ARPA) grew faster than anticipated, up £90 to £1,077 a month over the year.
Despite this, the Rightmove share price is down 1.88% at time of writing. One reason may be the 4.6% drop in sales transactions so far this year and lengthening time to completion has finished off some low-stock agents, with 3% leaving the industry. Accordingly, member numbers are down 1% since the start of the year to 20,209.
Rightmove says this has been offset by strong ARPA growth, and expects this pattern to continue. However, the welcome and “meaningful increase in the number of new homes developments” now seems likely to stabilise. That’s important because the site charges developers to advertise new homes, and revenues from this source have just leapt 29% to £27.8m, against £104.8m from agencies. So a slowdown here would be a worry.
Mortar to come
The British love affair with bricks & mortar continues, despite the 4.4% drop in London house prices over the year to May, according to ONS figures. Nationally, they still rose 1.2%. Year-on-year traffic rose 2% with nearly 141m visits per month. Estate agents cannot ignore it, although many would like to, and that gives Rightmove pricing power.
The group enjoys attractive operating margins of 77.1% on an underlying basis, although underlying operating costs jumped £2.8m to £32.9m. That was due to wage inflation and lifting the headcount from 484 to 517, which will really show up in second-half results.
Rightmove, wrong price
Aha! Now I see the reason for the relatively downbeat market response. Rightmove now trades at 25.8 times forecast earnings, which is a pretty thumping valuation, despite a 10% fall in the share price over the last month. It will have to go some to justify that. And with Brexit no-deal fears intensifying, investors may have good reason to be cautious right now but top fund manager Terry Smith is an admirer.
Wisely, Rightmove is looking to broaden its revenue base, today announcing the £20m acquisition of Van Mildert, which provides tenant referencing services and rent guarantee insurance products, and should boost the group’s EPS in the first year of ownership.
Today, Rightmove upped its interim dividend by 12% to 2.8p in a welcome sign of progression, which offsets the disappointment of a relatively low 1.4% yield, covered 2.8 times. City analysts reckon earnings could grow 7% in full-year 2019, and 9% next year. That’s promising, but it can’t afford any slips now.