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Bashing for Rightmove shares as City is concerned over agency numbers

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Mon 04 Mar 2019

Bashing for Rightmove shares as City is concerned over agency numbers

Rightmove’s share price fell hard on Friday, despite the firm announcing record results on the back of its advertisers paying an average of over £1,000 a month for the first time.

However, there was speculation that the City was uneasy that Rightmove’s agency numbers dropped last year – albeit by just 2%.

The shares picked up later in the day.

Rightmove announced a profits margin of 74% and pre-tax profits of £198.3m for last year.

The number of estate agency branches listing on Rightmove dropped to 17,328, but revenue from estate agencies was up 9% to £201m.

Chief executive Peter Brooks-Johnson told the Financial Times that Brexit uncertainty had prompted some agents to leave the industry.

He said that these included some slightly older proprietors who have said ‘I don’t need to be doing this any more’.

He said: “We would expect to see a bit more (departures) this year but I don’t think about that as a measure of the health of the agency industry.”

One analyst, Sherri Malek of RBC Capital Markets, said there were “risks related to the market backdrop”.

Another analyst, William Packer, said the fall in share prices on Friday was a “harsh reaction”.

He said that as at January, agency numbers advertising with Rightmove were stable.

Reporting on a briefing to analysts, he said that Rightmove had been upbeat, with 50% of agents spending less than 5% on Rightmove – described as an “addressable opportunity”.

Packer, of Exane BNP Paribas, said: “Management also played down their exposure to branch numbers as the revenue model is increasingly based upon total contract value as agents change their physical footprints.”

He said that while bears would focus on weaker agency numbers, “we see Rightmove as well placed to continue to grow its agency business via innovation and pricing power even as the estate agency industry structure matures with digital”.

Packer added that Rightmove management had said at the briefing that its pricing was going to plan.

A writer on investment website Motley Fool hailed Rightmove’s results as “amazing”.

The article says: “Estate agents have no choice but to list their properties on Rightmove. And the company understands this.

“The firm’s operating profit rose by 11% last year, mostly because the average monthly revenue collected from each of the firm’s advertisers rose by 9% to £1,005.

“Agents are said to be unhappy with Rightmove’s ever-increasing prices. A number of big agencies have grouped together to launch a cheaper rival service, OnTheMarket.com. They may succeed, in which case I’d expect Rightmove’s profits to fall sharply.

“But for my money, Rightmove’s domination of the market is so complete that rivals are unlikely to be able to gain enough momentum to rival the market leader.

“That’s why I continue to rate these shares as a buy at current levels. In my view, a price tag of 25 times forecast earnings isn’t too much to pay for such a profitable and dominant business.”

While Rightmove share prices dipped by some 6% at one stage on Friday, down to about 448p, by the end of the day they had recovered to being just 2% down. They start the new week trading at around 472p.