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A Different Way To Cash In On The Housing Boom

housesThe housebuilders and the banks have been a good way to play Britain’s booming housing market. But the easy gains have now been made and many fear that 2014’s exuberance could be followed by a nasty hangover in 2015, when interest rates have risen and the next General Election is another five years away.

Here’s a different way to cash in on the current boom – and pick up a great long-term investment. Property website Zoopla has announced its intention to come to market in an IPO next month that should value it at around £1bn, propelling it straight into the FTSE 250. In the long run, Zoopla’s own fortunes will ebb and flow with the buoyancy of the housing market — but the flotation should reap immediate rewards for its 52% owner Daily Mail and General Trust (LSE: DMGT).

70% rise

DMGT’s shares are up around 8% on the news, bolstered by a good set of half-year results, but I reckon there’s still money left on the table that would see the shares rise further on a successful flotation this summer. The company was the Motley Fool’s choice as its top growth stock for 2013, and duly rewarded our stock pickers with a share price gain of over 70% during the course of that year. The momentum continued into the first part of the year, but the shares have since drifted and — even after the recent gains — are still 22% off the year’s highs. With confirmation of Zoopla’s float, they ought to be able to regain that peak.

Oversubscribed

Zoopla is a microcosm of DMGT’s clever exploitation of the move from print to online. DMGT helped Zoopla hoover up rival websites to consolidate its position as a clear number two to Rightmove, which listed in 2006. The two companies charge member estate agents to list properties on their website. The business model captures the trend for house hunters to search online, and with the UK’s fragmented estate agents signed up it creates a significant economic moat for the two companies.

Private investors can’t participate in Zoopla’s IPO, which will see at least 25% of the company listed, but member estate agents can subscribe at a discount and the Financial Times has reported that their demand covers the order book multiple times. That should ensure a successful flotation, either with institutions left scrambling for stock when Zoopla enters the FTSE index, or a bigger float of shares. DMGT would gain either way.

Not just a newspaper

It’s a reminder that DMGT is much more than the eponymous newspaper that once comprised all of its business. A classic Harvard Business Review paper coined the term ‘marketing myopia’ to describe industries such as the US railroads, which lost out to airlines because they saw themselves in the railroad business not the transportation business. Unlike some struggling rivals such as Trinity Mirror, DMGT is now very firmly established in the broader information business, with a highly-popular consumer website and large business-to-business operations.

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Tony owns shares in DMGT but no other shares mentioned in this article.