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Better buy: plc vs Rightmove plc

Price comparison site, (LSE: MONY) and property search portal Rightmove (LSE: RMV) are household names and the go-to destinations in their respective markets. The former helped nearly 7 million families save an estimated £1.8bn in household bills in 2016. The latter now advertises over 1 million UK residential properties — a third more than its nearest competitor.

But which company is the better investment at the current time? Let’s take a look at recent results.

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Great company, mixed outlook

Their TV adverts may have drawn huge criticism, but — thanks to strong trading in the fourth quarter — group revenue at rose 12% in 2016, according to Tuesday’s full year results. Adjusted operating profit and adjusted earnings per share both climbed 8% to £107.8m and 15.7p respectively.

As far as 2017 is concerned, however, the outlook appears mixed, which should explain why the company’s share price sank over 7% in early trading. While revenues from insurance, credit cards and loans showed impressive growth in January and February, the same performance wasn’t seen in savings and current account switching due to the low interest rate environment. As a result, Group revenues are currently lagging those of last year.

Of course, this state of affairs could easily reverse over the remainder of 2017.  Moreover, yesterday’s announcement on the changes to the way compensation payments are calculated should mean that drivers continue to flock to the site to find the best deal they can on car insurance. This makes me suspect today’s sell-off has been overdone, particularly when a dividend hike of 8% and confirmation that the company will initiate a £40m share buy back programme are also taken into account.

Given’s long history of consistently growing revenue and profits, its high operating margins and excellent returns on capital, I think the shares warrant serious consideration.

Right on

Last week’s final results from fellow FTSE 250 constituent Rightmove were yet another indication of just how dominant the £3.7bn cap has become.  

Revenue rose 15% year on year with underlying operating profit and earnings per share rising 15% and 18% respectively. With traffic growing by 10%, Rightmove recorded nearly 1.5bn visits to its site over 2016 with visitors spending nearly a billion minutes every month searching for their new home. 

As a result of these numbers, the company announced a final dividend of 32p last Friday, bringing the annual payout to 51p. While a yield of around 1.3% will never attract income investors, the 19% hike is nevertheless indicative of a company in strong financial health.

Right now, shares in Rightmove trade on a price-to-earnings (P/E) ratio of 29 for 2017. That’s expensive relative to most shares, including those of (20). Indeed, this high valuation coupled with growing concerns over how Brexit will impact on the property market may explain why shares have fallen over the past few days.

Nevertheless, I believe any concerns over Brexit are irrelevant here. Even if a property downturn does come, Rightmove’s subscription based services will still be required, regardless of how many properties agents are able to sell or rent out. Should the shares sink further, investors will be presented with a golden opportunity to snap up a company that bears all the hallmarks of a quality operation.

So, which is the better buy? For the sheer monopoly it has, Rightmove just about scrapes it for me. If funds allow, however, I’d happily add both to my portfolio.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended and Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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