Sometimes the share prices of even the best companies become over-heated, skewing the risk versus reward investment case. Liberum analyst Ian Whittaker has made a bold call on popular property listings website Rightmove (RMV), reeling in his recommendation on the stock from ‘buy’ to ‘hold’.

It comes as the stock trades within touching distance of his £50.00 price target, down 0.4% today at £49.39.

When Whittaker’s first set his share price target in May 2016 it looked a stretch. The stock was at the time trading around the £38.00 mark. The target looked even bolder in the aftermath of the shock Brexit vote the following month, with the shares sinking below £35.00.

Roll the clock forward by two years and the analyst's target price looks astute - the share price actually poked above the £50.00 mark in intra-day trading on 1 June.

HOUSING DEMAND WOBBLES

Rightmove has clearly demonstrated its ability to perform well even against the uncertainties surrounding the UK housing market.

As we have discussed in Shares several times (read through our archive here). Being the market leader creates a virtuous circle for Rightmove. Its website has the most listings and is therefore the one which prospective property buyers will go to when looking for their next home.

This reinforces its position as a must-have product for estate agencies and generates significant pricing power when it comes to securing subscriptions from agencies. This has enabled the company to boost average revenue per advertiser or ARPA from £684 per month in 2014 to £922 per month in 2017.

UPSIDE DRIES UP

However, Whittaker now fears there is limited scope for further upside. ‘We think RMV will not want to aggressively push ARPA increases for fear of attracting regulatory attention.’

He also doesn’t think M&A interest will emerge. ‘We see a bid for Rightmove - as happened with ZPG - as unlikely. Margins at c. 75%-76% offer little scope for cost-cutting and we do not see bids from other classified groups.’

Investors will get an insight into the online property portal market when challenger OnTheMarket (OTMP) reports its full year numbers tomorrow (7 Jun).

Rightmove is next set to update the market with its half year results on 27 July.

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Issue Date: 06 Jun 2018