Interactive Investor

ii view: bullish Rightmove raises forecasts

Shares in this FTSE 100 property website fell 36% in 2022 and were almost unchanged during 2023 coming into this latest update. Buy, sell, or hold?

27th November 2023 11:49

Keith Bowman from interactive investor

Trading update from 1 January to 24 November

  • Revenue growth has continued to track marginally ahead of City forecasts

Chief executive Johan Svanstrom said:

"The momentum that we reported in July has continued through the third quarter and beyond. The strength of our performance against an uncertain market backdrop demonstrates the strength of the UK consumer affinity to our platform, the value of the established network effect of our business model, the depth and richness of our consumer data, and the value that our customers place in our products to build their businesses. It also illustrates the resilience of our business model in all phases of the property market cycle. 

“We continue to look to the future with confidence and remain focused on the delivery of our strategic plans, both in our core business and in strategic growth areas.”

ii round-up:

Online property advertiser Rightmove (LSE:RMV) today raised its full-year revenue forecasts as it outlined plans to accelerate revenue and profit growth out to 2028. 

Advertising demand from new home developers now sees it expecting annual growth in average revenue per advertiser of between £112 and £116, up from a previous £103 to £105. That drives expected growth in adjusted profit up to a possible 8%. That potentially generates annual sales and profit both around 1% ahead of current City estimates. 

Shares in the FTSE 100 company rose more than 5% in UK trading having come into this latest news down by close to a tenth over the last year. That’s similar to estate agent Savills (LSE:SVS) and below an almost unchanged performance for the FTSE 100 index itself over the last year.  

Property professionals such as estate agents, lettings agents and new home builders pay a subscription fee to advertise their properties on Rightmove’s popular website.

Rightmove also detailed new targets across both the business as a whole and in specific areas up to 2028. It now hopes to grow overall revenue and adjusted operating profit by more than £600 million and £420 million respectively come 2028. 

Specific areas of targeted growth are to increase commercial real estate related revenues by more than £35 million by 2028, and to expand mortgage related sales by over £25 million. 

Broker UBS reiterated its ‘buy’ rating on the shares post the update, raising its estimated fair value target to 699p from 688p per share and highlighting its view for increased confidence in business resilience and long-term opportunities.  

ii view:

Rightmove describes itself as the UK's largest property website, advertising around 90% of all homes for sale via estate agents across the UK. Started in 2000, it was floated on the London Stock Exchange in 2006 and is today a constituent of the FTSE 100 index. Time spent on its website increased from 11.7 billion minutes in 2016 to over 16 billion minutes in 2022.

During its last full financial year, agency customers accounted for its biggest slug of sales at almost three-quarters. Advertising sales in relation to new home developers followed at a further 16%, with other businesses such as commercial property, data services, overseas listings, and third-party advertising making up the balance of around 10%. 

For investors, costs generally for businesses remain elevated, and competitors like Zoopla are not standing still. Competition in smaller areas of targeted growth such as mortgages is fierce, while a forecast dividend yield of under 2% compares to over 6% for property owner and real estate investment trust Land Securities Group (LSE:LAND)

On the upside, the challenging backdrop for the property market looks to be strengthening the need for customers such as home developers to advertise. A diversity of customer types exists, from buyers and renters under agency customers to new home sales from developers, while medium to longer-term growth plans under the relatively new chief executive now underpin fresh financial targets. 

For now, and despite ongoing risks, long-term fans of this major UK property website will likely be reassured by the latest news, while aggressive new targets might pique the interest of other investors.  

Positives: 

  • Strong market position
  • Diversity of customers

Negatives:

  • Uncertain economic backdrop
  • Costs generally remain elevated 

The average rating of stock market analysts:

Hold

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