Rightmove has long been regarded as a proxy for the housing market. The shares reached an all-time high on December 30, fuelled by the stamp duty holiday and its aftermath, then started a two-month slide as investors anticipated a return to less frenetic post-Covid property trading. But there is more to the company than plain selling houses. It is rapidly spreading its wings into mortgages, insurance, commercial property and more sophisticated services for its true customers — estate and letting agents.
Underlying operating profit rose by 67 per cent to £231 million in 2021. Revenue rose to £304.8 million. The results were greeted on Friday with a 28p rise in the share price to 643p, which was extended to 672½p yesterday. Note how the profits compare with that revenue figure, representing a breathtaking 75.9 per cent margin.
Capital and labour costs are low, so no matter how fervently the company tries to dream up new ideas, the pile of cash grows even faster. As a result, it has been busy shovelling money down investors’ throats, a total of £417 million in the past three years through dividends and buybacks, and it was still sitting on £48 million on New Year’s Day. That figure doubtless has been left far behind in the two months since.
Arpa — the all-important average revenue per advertiser — rose by 9 per cent to £1,189 last year, back above the 2019 number after a 2020 dip to £778, as website traffic over the year hit a record 2.5 billion. The 2021 Arpa was driven primarily by product purchases, package upgrades and higher prices as it broke out new offers to agents to analyse markets.
Rightmove was started in 2000 by the Countrywide Assured, Connells, Halifax and Royal and Sun Alliance estate agencies as a convenient way to list their own properties in the early years of the internet. Six years later, Rightmove floated on the stock market, swiftly graduating to the FTSE 100 index with a present value of £5.2 billion.
Are the 2021 results repeatable? The company admits that transaction levels will return to pre-pandemic levels, but insists that it is “not materially impacted by the property market cycle, other than in the most extreme circumstances”, and that the UK online property advertising market will continue to outpace that cycle.
Peter Brooks-Johnson, the chief executive, wants Rightmove to escort homebuyers and renters throughout the process, from engaging advisers to buying home contents insurance and broadband, and maybe even offering tradesmen, such as decorators. “I’m excited about our plans to use our industry-leading platform to digitise more of the home-moving journey,” he said.
It helps to train estate agents, runs price comparisons for surveyors, provides automated valuations, is improving online viewing and is looking to revive overseas plans paused by the pandemic.
Rightmove is extracting maximum advantage from being a first mover, reinforcing its moat with franchise extensions. They will help it to guard against the main threat to its fat margins — competition. Zoopla and Onthemarket are nibbling its cake.
The 2021 profits boil down to underlying earnings per share of 21.3p, compared with 12.6p in 2020 and, more meaningfully, 19.6p in 2019. That puts the shares on a price/earnings ratio of 29.5, which could fall to 26 or 27 this year.
The final dividend of 4.8p per share, up from 4.5p in 2020, took the 2021 total to 7.8p. That produces a yield of only 1.2 per cent, but has to be seen in the context of the pledge to continue buybacks.
ADVICE Buy
WHY The return to more normal trading conditions should favour the market leader, which has plenty of potential to exploit
IMI
Once the epitome of the Midlands metal-basher, IMI is now a precision engineer that actively looks for leading-edge problems to solve. While overfond of corny slogans, such as “severe application solutions” aimed at “breakthrough engineering for a better world”, the company has been turning those fine sentiments into practical achievements.
Its latest results show a 14 per cent rise in pre-tax profit from £214.3 million in 2020 to £244.6 million last year, on the back of revenue up 2.2 per cent from £1.83 billion to £1.87 billion.
According to Roy Twite, the chief executive: “In 2021 we have made excellent progress with our accelerated growth strategy through increasing customer intimacy, market-led innovation and reducing complexity.” Faced with supply chain squeezes, he ordered engineers on to private jets to fix time-critical customer outages.
Central to Twite’s strategy is the growth hub, a process for identifying promising problems and turning the answers into profitable products and services. “The number of growth hub teams is increasing,” he said, “and many initiatives are now delivering tangible results.” To that end, in December the group bought Adaptas Solutions, a Massachusetts-based laboratory equipment maker.
IMI has three divisions: critical engineering, producing flow-control systems for oil, gas and petrochemicals companies; precision engineering, making motion and fluid systems for carmakers and life sciences firms; and hydronic engineering, turning out water-based heating and cooling systems for home and commercial builders, mainly in Europe. Twite has led them all.
Jefferies, the broker, said that the management was “delivering well” and “positioning the group nicely for the medium and longer term. Execution has been strong and we remain positive on the group.”
A 15.8p final dividend took the full-year payout from 22.5p to 23.7p. That trend should continue. Twite does not disagree with full-year adjusted 2022 earnings per share of 102p, which likely means there is enough in the locker to reach 110p for a 13.4 forward price/earnings ratio.
ADVICE Buy
WHY A solid performer with prospects to match
