Rightmove has found itself living in increasingly cramped accommodation of late. Once free to roam the property market as it pleased as the de facto search website, it now has to share digs with a host of upstart rivals, from ZPG, the former Zoopla, to Purplebricks, Onthemarket and Emoov.
Not only that, its main customers are estate agents, battling massive pressure on costs in a market mired in uncertainty in the run-up to Brexit. For these reasons, Rightmove’s shares, which peaked in late June at 535p, have since lost more than a fifth of their value, although they have come back over the past fortnight as some in the market, including at UBS, began to believe that they had been oversold.
Rightmove is languishing perilously close to the bottom of the FTSE 100 and, alongside Royal Mail and Just Eat, is a candidate for demotion at the next index reshuffle at the beginning of December. It would be a sad departure for a company that only qualified to join the blue-chip index in June on the exit of Old Mutual, the financials group, following its break-up.
With Rightmove not scheduled to update investors until March, when it reports results for this year, what are shareholders to make of it all?
Rightmove was set up in 2000 by four estate agencies, Countrywide, Connells, Halifax and Royal & Sun Alliance. It was initially free for agents to list their properties for sale but began to charge at the beginning of 2002. The same year Rightmove began to offer paid-for listings to the developers of new homes, two years later it started charging letting agents, and then it began to offer advertising in 2007.
These remain its main sources of revenue, the vast bulk of it from agents paying a subscription to list their homes for sale, though Rightmove also operates overseas sites and a commercial property search, sells its data and offers advertising to a wider audience.
Rightmove’s perceived reliance on fees paid by estate agents, and its ability to keep putting up its prices, has had analysts fretting. When Rightmove reported its half-year results in late July, the numbers were startlingly good bearing in mind the wider pressures: revenues up 10 per cent to £131.1 million, pre-tax profits 12 per cent higher to £98.1 million and the dividend up 14 per cent to 25p a share.
What analysts and investors saw, though, was Rightmove’s flat membership levels; just 23 agents and developers joined in the six months to end of June and there were only 92 additions over the 12 months. Berenberg cut to sell from hold and Peel Hunt moved to reduce, both of them highlighting the cost and consolidation pressures on agents and the threat from rivals, not least Onthemarket, which has been offering free listings.
Rightmove’s subscription model shields it from price and supply problems, but not from cost-conscious agents transferring their allegiance to a free or cheaper rival (Purplebricks, for example, with its model of a flat fee for homesellers), particularly if it gains traction.
The difficulties agents face were illustrated yesterday by a report on Sky News that online-only Emoov is up for sale amid suggestions that its finances are under strain.
The fall in Rightmove’s shares feels to be more of a correction to take account of slower future growth and the uncertainty around housing.
Before the fall, they were trading on about 32.7 times last year’s earnings, which is very high. Even after a rise of 3¾p yesterday to 456p, the ratio is 28 times for a yield of less than 1.3 per cent. It should probably correct a bit more because that still looks like a rich price for scant reward and loads of associated risks.
ADVICE Sell
WHY Its growth options look limited in a market that is already wildly competitive and set to become more so
Croda International
Sometimes boring can be good. At least that was the view of analysts at Barclays yesterday after Croda International reported yet another quarter of solid sales growth. They may have a point. The speciality chemicals group has delivered boringly strong returns for its shareholders consistently for at least the past ten years.
Croda International was founded in 1925 when an entrepreneur joined forces with a chemist to open a chemicals factory in Yorkshire. It specialises in the active ingredients in products ranging from shampoos, detergents and face creams to the lubricants motorists use to keep the engine running smoothly.
It operates three main divisions: performance technologies, life sciences and the largest, high-margin unit that the City is particularly fond of: personal care. It made sales last year of £1.37 billion and is a member of the FTSE 100 index.
Its performance over the three months to the end of September was less than boring. Personal care sales were up 4.9 per cent against a strong comparable figure for the same quarter last year that suggests the growth rate is accelerating.
The figures implied a growth spurt in life sciences, which includes ingredients that activate drugs, and a minor slowdown in performance technologies, where lubricants, detergents and washing liquids sit.
The reaction of the shares, up only 27p to £48.47, demonstrates how high the City’s expectations are. Croda is in a strong position: because the chemicals it supplies are active, and therefore essential, ingredients in the products they are used to make, the company is highly unlikely to be frozen out in any simplification or cost-cutting drive by manufacturers.
It has a diverse set of customers, including Unilever, Procter & Gamble and Johnson & Johnson in the consumer sector. It is also well spread geographically, with Asia accounting for 40 per cent of sales and North America 30 per cent.
Its reliability means its shares are highly rated, trading at close to 27 times earnings for a yield of just under 1.7 per cent. That’s not cheap but there’s nothing to suggest that Croda will do anything other than bring in solid and reliable growth.
ADVICE Hold
WHY Reliable earner that may yet reward investors with a special dividend
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