Does the prospect of a clean Brexit paint a rosier picture for Rightmove, the property website that clearly would benefit from anything resembling a recovery in the housing market?
The last time that this column visited the group, we unceremoniously slapped a “sell” recommendation on the shares, what with the company seemingly poised to be turfed out of the FTSE 100, facing questions about its growth options and operating in a market that was rife with competition.
On the face of it, that was to underestimate Rightmove’s resilience. It has held on to its position in the index of Britain’s biggest quoted companies, has pushed up its revenues and profits and has made an interesting acquisition in the rental sector. The shares have recovered strongly.
Rightmove was established in 2000 by four estate agencies — Countrywide, Connells, Halifax and Royal & Sun Alliance. Initially free to list on, it began to charge agents to show their homes two years later, subsequently adding new revenue streams in the form of paid-for listings for the developers of new homes, followed by a move into lettings and then into advertising. Although these services still account for the majority of Rightmove’s earnings, it also operates a commercial property search facility, sells its data to third parties and targets advertising at companies outside the property sector.
Among the things that appeared off-putting when Tempus looked at Rightmove in November 2018 was the trend in the number of estate agents and developers signing up. Faced with pressure on costs and against a backdrop of consolidation in what remains a fragmented sector, Rightmove’s membership level was becalmed, not least as a result of rivals, including Onthemarket, offering their listings for free.
Look again and the website’s membership level fell by 1 per cent over the six months to the end of June. While that doesn’t initially look encouraging, according to the company most of the departures came from small agents with limited stock on their books and the drop masked a strong increase in arrivals from the developers of new homes.
Indeed, the falling membership during the first half of the year is the only area where the numbers have been moving in the wrong direction. Revenues, operating profits, average revenue per advertiser and the dividend all grew and in almost every case by double-digit percentages against the same period the previous year. Rightmove also has been adding further products to its offering, most recently via the acquisition for a maximum of £20 million of Van Mildert, which among other things secures references for tenants.
Rightmove has shown its resilience in the face of the heightened competitive pressures of new arrivals in its marketplace and a steady slowdown in the housing market — most notably of new supply rather than prices — since the European Union referendum in June 2016.
Anecdotal evidence suggests that the resounding Conservative general election victory has already translated into a greater keenness among both buyers and sellers to make their move. While it might be overstretching it to talk of a surge, the indications are that the property market will stage a gradual recovery over the course of the year.
Rightmove’s shares, which slipped by 5½p, or 0.8 per cent, to 634¾p yesterday, have risen by 40 per cent since November 2018. They are valued at 28.8 times Goldman Sachs’ forecast earnings for a dividend yield of 1.2 per cent. Those metrics don’t justify a “buy”, but the group’s performance does merit an upgrade.
Advice Hold
Why Demonstrating resilience and ability to diversify and grow in a highly competitive property market
Dignity
Betting on the death market is not as straightforward as it might seem. The grim reaper comes for us all, but his timing can be unpredictable and irregular.
Surprise falls in quarterly death rates have made for some bumpy earning releases at Dignity, Britain’s only listed funeral services provider, although some might argue that this has been the least of its problems.
The funerals industry has found itself under the scrutiny of the Competition and Markets Authority, which has expressed concerns about some operators potentially charging excessive prices. Its report is expected by the end of March. Separately, the Treasury has become involved, calling for pre-paid funerals to be regulated.
Dignity says that it welcomes regulation, which should drive out rogue operators, but it has had to put some of its developments on hold pending the outcome. At the same time, the company has been in the thick of an overhaul of its pricing, introducing flexible plans as part of measures that it says are in response to the ferocity of competition.
Dignity was launched as a brand in 2001, but it traces its history back to 1812 in Glasgow. It claims a market share of a little below 12 per cent for funerals and its main competitor is the Co-operative Group.
The costs associated with its transformation plan mean that the company has suspended the dividend, which analysts at Investec do not believe will be reintroduced before the end of next year. The broker is forecasting that revenues and profits will remain broadly flat over that period. Estimates from the Office for National Statistics suggest that, thanks to the ageing population, the number of annual deaths should grow steadily between now and 2040, most likely to the benefit of Dignity, which should also claim market share as a result of regulation.
The shares, which have fallen sharply since the involvement of the CMA, were 5½p, or 1 per cent, higher at 580p yesterday. They are undoubtedly cheap, trading at only 9.4 times Investec’s forecast earnings but with no dividend yield, yet investors might want to wait for more clarity before making a move.
Advice Avoid
Why Too much uncertainty over the outcome of watchdog’s investigation
