Just occasionally the City astounds me.
On the one hand it takes a very negative
view of Taylor Wimpey, while at the
same time it puts another property stock,
Rightmove, on an astronomical multiple
of over 12 times 2007 sales. The last
time I saw such a hi-octane rating was
during the dotcom boom. Rightmove is
the UK’s leading residential property
internet portal, originally founded by the
Halifax, Connells and Countrywide. The
website generates income from
advertising houses, new home
developments, lettings and overseas
properties. Advertisers can upload all of
a property’s details, from photographs to
maps and even virtual tours.
On 6 July, Rightmove released an upbeat
trading statement, underlining its
dominance in the online market. All 15 of
the largest estate agents and 19 of the top
20 developers now list on the website.
Traffic went up 58% in the first half with
24.3 million visits per month, while the
number of advertisers rose 26% to
18,515. The group also experienced
“continued growth in new members and
high retention rates… whilst its 67%
stake in a holiday lettings business was
also trading ahead of expectations”.
Fine so far, but with such a strong
position in the UK, where is the growth
going to come from to justify the sky-high
rating? More worryingly, cracks are
starting to appear. Tempted by the
lucrative operating profit margins of 50%
plus, competitors such as Tesco and Asda
are dipping their toes in the market. And
with the growing importance of social
networking sites, together with the threat
from classified listings on Google and
Craigslist, over time the environment will
become much more competitive. Just look
at the way Friends Reunited’s dominance
in connecting old school friends has
dwindled over the past three years, due to
the impact of Facebook and Myspace.
Finally, if the UK housing market does
soften in the coming years, then this will
surely hurt Rightmove’s future turnover
and earnings. The City expects 2007 sales
and earnings per share of £54.7m and
15.9p respectively, rising to £71.7m and
22.7p in 2008 – thus putting the shares
on a racy 2007 p/e of 35 times. With the
best of the UK property market behind
us, I would instead value the shares at
around 300p, or about half their present
level. The CEO and CFO together sold
around £5m worth of stock in March at
480p, while the company listed on the
LSE in March 2006 at 335p. My advice
would be to follow the directors’ lead and
take profits

Recommendation: SELL at 582p