House prices have rebounded 8.5% in the past year, but things are about to turn ugly again as the economy struggles. So what next for Rightmove, owner of Britain’s most popular property website? It enjoys a dominant 81% share of the online space, generating income from customers who wish to advertise homes, new developments, lettings and overseas sites.
The bulls argue that the firm’s online presence will continue to benefit from the shift from traditional print media to the web. But I doubt that warrants the staggering four-fold leap in the shares since January 2009. With the City predicting 2010 sales and earnings per share of £87m and 38.9p respectively, rising to £95m and 40.7p in 2011, the shares trade on a jaw-dropping 2010 enterprise-value-to-sales multiple (see page 44) of 8.5. The last time such high-octane ratings were common was during the dotcom boom of 1999.
Sure, most of Rightmove’s clients have little choice for now but to carry on paying its listing fees (which average £370 a year). But aggressive new entrants (such as Google, which operates a free listing site in Australia), are drooling-over the firm’s juicy 60% margins. That’s a worry, given that four big contracts with large national estate agencies are due for renewal in June. So I would rate the shares on a multiple of five-times turnover. That suggests an intrinsic worth of around 415p per share.
Rightmove (LSE: RMV), rated a BUY by Numis Securities
Recommendation: SELL at 712p
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments