ii view: Agency customer numbers in decline at Rightmove

Profits are growing but paying high street branch numbers are falling. Where now for investors?

Full-year results to 31 December 2019

• Revenue up 8% to £289 million
• Operating profit up 8% to £214 million
• Final dividend up 10% to 4.4p per share
• Total shareholder cash returns down 12% to £149 million

Chief executive Peter Brooks-Johnson said:

“January 2020 was our busiest month ever with more than 152 million visits and that trend has continued as we've recorded our five busiest days ever in February.

“I'm pleased that many of our customers who are seeing opportunity are choosing to invest in our digital solutions to grow their businesses. By working with our customers, 2019 has yet again demonstrated that Rightmove is a business which can continue to grow in uncertain times.”

ii round-up:

Property website Rightmove (LSE:RMV), founded in 2000, reported a 6% fall in agency branch customers in these latest results. 

The company’s paying customers include estate agents, letting agents and new home developers. Agency branch customers, which generate over 70% of group revenues, fell by 6% to 16,347.

The uncertainty of Brexit made for tougher trading conditions, resulting in lengthening transaction times and cash flow issues for some smaller branches. 

Estate agent chains Countrywide (LSE:CWD) and LSL Property Services (LSE:LSL) only recently announced that they are in talks regarding a possible merger. 

Rightmove shares on the day of the results fell by more than 3% in late afternoon trading, as markets more broadly sold-off on continued coronavirus concerns. 

Overall group sales rose by 8% to £289 million, helped by a push from housebuilders marketing more stock and lifting sales for its other key New Homes division by 20% to just over £55 million. 

Average Revenue Per Advertiser (ARPA) increased by £83 to £1,088 per month, with web traffic growing by 2% to average 135 million visits per month. 

ii view:

Rightmove appears to retain first mover advantage. The popularity of its website is proving difficult for the competition to catch let alone overtake. Advertising for estate agents has moved increasingly online. Sales of its advertising subscription packages and not housing sale numbers are what is important to Rightmove.

Predictable cash flows reflect the subscription nature of the business coupled with low working capital requirements. However, reducing high street branches through either closure or merger potentially reduces advertising fees going forward. The advent of online estate agents such as Purplebricks (LSE:PURP) also generates low cost online competition to the traditional branch networks. 

For investors, and as is often the case with internet businesses, the correct valuation for the company is a tough call. A one-year estimated price/earnings (PE) ratio at over 30, above both the three and 10-year averages, suggests the shares are not obviously cheap. And, while nine consecutive years of dividend growth is not to be overlooked, a yield of around 1% is comfortably below the 4%-plus average on the FTSE 100 index. In all, with current growth weighed against concerns for future growth, investors may wish to take a ‘wait and see’ approach. However, positive momentum witnessed over the 12 months prior to the coronavirus sell-off, does imply that investors seeking exposure to the industry are prepared to pay for an established quality name.

Positives: 

• Strong market position
• Nine consecutive years of dividend growth 

Negatives:

• Estate agent branch numbers under pressure
• Brexit trade negotiations may generate further property market uncertainty

The average rating of stock market analysts:

Weak hold