Until recently, financial analysts and commentators, when making pronouncements about portals, have tended to ignore a key element in the ‘value’ – the paying customers.
But the Covid-19 pandemic has brought the realisation that if agents are not listing and selling/letting properties then they are not willing or able to pay the portals.
The price cuts that the portals have made in order to help their customers keep heads above water affect their incomes.
There must be a consequent and inevitable effect on portal share prices.
Financial analysts and commentators are perhaps beginning to recognise what the industry has always known. It is the paying agents that underpin the value of the portals.
Last Wednesday, RBC Capital Markets downgraded Rightmove from ‘sector perform’ to ‘underperform’, cutting the share price target from 550p to 440p.
It said the shares are not appropriately discounting the risk of prolonged pressure on the property market and in turn, Rightmove’s customers.
Whilst noting Rightmove’e historically attractive performance RBC foresees that the risk of a sharp impact on the property market from Covid-19 extending into a drawn-out period of weakness has increased, and as a result it expects an acceleration in estate agent closures and greater pressure on Rightmove’s average revenue per agent in the near term.
RBC said:
“The inevitable rise in UK unemployment and weakened consumer confidence are likely to dampen property demand beyond the lockdown. GfK’s consumer confidence index in March plummeted to its lowest level since the financial crisis.
“Sentiment across the housing market has also deteriorated sharply in March, as highlighted by the latest RICS UK Residential Survey results, with the majority of respondents expecting sales to be down over the year ahead. Rightmove’s pricing power may be undermined by a downturn.”
The sustained buy-back of its own shares by Rightmove is analysed by Phil Oakley in Investors Chronicle under the headline: ‘Rightmove: Should investors prefer special dividends to share buybacks?’
Oakley writes:
“From a financial performance point of view, Rightmove (RMV) is one of the most impressive companies listed on the London Stock Exchange.
“It is highly profitable and has very small ongoing business investment requirements, which means it has been generating huge amounts of free cash flow in recent years.
“Most of this free cash flow has been used to buy back its own shares. Since it started buying back shares at the end of 2007, it has repurchased nearly 433m shares and currently has just over 873m in issue. ”
Whether this has been a good strategy is discussed in depth in the article which also looks at the pressures that are mounting on the company.
Oakley continues:
“Its estate agent customers are currently not selling houses and have little cash flow.
“Rightmove has given them big discounts on their monthly bills, which in turn means that its revenues and profits will be lower and that it will not be paying dividends or buying back shares for a while.
“The real risk to Rightmove is that its customer base takes time to recover and so do its profits. At 507p, Rightmove shares still trade on a very expensive 26 times last year’s fully diluted EPS [earnings per share] and therefore a much higher valuation of likely profits in 2020.
“There has to be some risk that its share price falls further, which means that the 108.5m shares bought at an average of 419p each over the past five and a bit years would begin to look more and more questionable as a good way of delivering long-term value for its shareholders.”
Read the full Investors Chronicle article
Rightmove’s 52-week share price range is currently 373.10 – 485.55 and its market capitalisation £4.206 billion.
and no-one cared
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Rightmove will ultimately have to squeeze its remaining Agents even harder post C19 …..lets see how that works out.
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And this analyst has missed the real issue for RM which is that they are hated by the industry and have been massively overcharging for years. Forget market sentiment and look at customer sentiment for RM. It’s never been lower.
Every boast or report of their massive profit margin and cash generative ability has hammered the nails of their coffin home harder, as estate agents margins have been constantly shrinking over the last 3 tough Brexit years.
Well Brexit looks like a ***** cat by comparison to what we have to face now with Corona and the fall it it will create.
The hate for them and their extortionate charges, coupled with the fact that the industry is generating no money (and won’t for some time to come) are major factors for RM’s future.
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No doubt at all that there’s a reckoning coming for Rightmove.
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If RM can no longer make money out of Estate Agents. Whats to stop them cutting out EA’s completely and allowing vendors to advertise direct. In the ‘autotrader model’.
Any agent supporting RM is sleeping with a Wolf.
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I think you are absolutely right This will happen and they are already gearing up for it. All the more reason to strengthen the other portals now.
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How about 9am every day apart from Sundays we all shout F OFF Rightmove and do the Wa*ker sign for 5 minutes?
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