Rightmove (RMV)

Price: 558p

Market cap: £4.4 billion

Every now and then, even well-known FTSE 100 firms can find themselves unloved and unwanted by investors through no fault of their own.

One such company is the UK’s biggest property portal Rightmove (RMV), whose shares have been out of favour since late 2022 despite the firm consistently beating market expectations.

Two months ago, the firm said since posting positive growth in the first half revenue had ‘continued to track marginally ahead of consensus expectations’ amidst an uncertain housing market due to better-than-expected ARPA (average revenue per advertiser).

‘Our performance underscores the strength and resilience of the business, with both estate agent subscriptions and new homes development listings stable. Our share of consumer time in the second half to date remains unchanged - at c85% - demonstrating the strength of our brand, our position with consumers and the established network effect of our business model’, the company noted.

It also raised its ARPA guidance for the full year to £112 to £116 from £103 to £105 thanks in part to developers using its advanced listing tools to sell new houses.

It is this entrenched position, not just with home buyers and estate agents, together with its unrivalled database on all aspects of the UK housing market, which make it such a resilient business.

While earnings per share dropped during the pandemic, they resumed their upward trend within about 18 months – a trend which we conservatively estimate at around 20% per year since 2006 – and are set to continue growing thanks not just to a recovery in housing activity but also new product areas, including charging mortgage brokers to offer advice through the website to customers applying for mortgages.

By 2028, the company expects annual revenue to exceed £600 million, against a consensus of £360 million for 2023, and sees operating profit topping £420 million against an estimated £250 million last year.

For this growth, investors are being asked to pay 22 times last year’s earnings, which is roughly the same multiple as at the end of the great financial crisis, during which the firm was consistently profitable we should add.

So, why is the stock now unloved? News that US marketing firm CoStar (CSGP:NASDAQ) has acquired OnTheMarket, a much smaller UK property portal, and is throwing close to £50 million at it – three times Rightmove’s annual media spend – has created a new ‘narrative’.

CoStar is promising a ‘multi-year investment programme totalling hundreds of millions of pounds’ to grab market share, but with such a huge lead already we really cannot see Rightmove being overly troubled in the next five years. 

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