The Motley Fool

Forget buy-to-let! FTSE 100 growth stock Rightmove is a better way to play the property market

The housing market might be under pressure and I wouldn’t touch buy-to-let with a bargepole right now. But that doesn’t seem to be a problem for property portal Rightmove (LSE: RMV).

Make the right move 

The £4.47bn FTSE 100-listed business has just reported a 10% increase in revenues to £143.9m in the half-year period to 30 June, with underlying operating profit also up 10% to £111m.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Underlying basic earnings per share are up 12%, from 9.1p to 10.2p, and investors have been reaping the rewards both in share buybacks and dividend increases. Rightmove returned £54m cash to shareholders via both vehicles in the period, even if this was down from £76.9m in the same period last year.

Pass the portal

Rightmove remains the number one UK property portal, with 1.1m residential properties. The really exciting figure today is that average revenue per advertiser (ARPA) grew faster than anticipated, up £90 to £1,077 a month over the year.

Despite this, the Rightmove share price is down 1.88% at time of writing. One reason may be the 4.6% drop in sales transactions so far this year and lengthening time to completion has finished off some low-stock agents, with 3% leaving the industry. Accordingly, member numbers are down 1% since the start of the year to 20,209.

Rightmove says this has been offset by strong ARPA growth, and expects this pattern to continue. However, the welcome and “meaningful increase in the number of new homes developments” now seems likely to stabilise. That’s important because the site charges developers to advertise new homes, and revenues from this source have just leapt 29% to £27.8m, against £104.8m from agencies. So a slowdown here would be a worry.

Mortar to come

The British love affair with bricks & mortar continues, despite the 4.4% drop in London house prices over the year to May, according to ONS figures. Nationally, they still rose 1.2%. Year-on-year traffic rose 2% with nearly 141m visits per month. Estate agents cannot ignore it, although many would like to, and that gives Rightmove pricing power.

The group enjoys attractive operating margins of 77.1% on an underlying basis, although underlying operating costs jumped £2.8m to £32.9m. That was due to wage inflation and lifting the headcount from 484 to 517, which will really show up in  second-half results.

Rightmove, wrong price

Aha! Now I see the reason for the relatively downbeat market response. Rightmove now trades at 25.8 times forecast earnings, which is a pretty thumping valuation, despite a 10% fall in the share price over the last month. It will have to go some to justify that. And with Brexit no-deal fears intensifying, investors may have good reason to be cautious right now but top fund manager Terry Smith is an admirer.

Wisely, Rightmove is looking to broaden its revenue base, today announcing the £20m acquisition of Van Mildert, which provides tenant referencing services and rent guarantee insurance products, and should boost the group’s EPS in the first year of ownership.

Today, Rightmove upped its interim dividend by 12% to 2.8p in a welcome sign of progression, which offsets the disappointment of a relatively low 1.4% yield, covered 2.8 times. City analysts reckon earnings could grow 7% in full-year 2019, and 9% next year. That’s promising, but it can’t afford any slips now.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.