Right move Plc. is a ‘Hold’ at the current price levels as the stock would be set for upside soon. The company announced its financial year 2016 results a month back on 24th February and it has come up with impressive numbers. The stock finished trading on the London Stock exchange at 3896p a share on 22nd March, down by 0.56% compared to the previous close. The stock has been in a correction mode for quite some time but it seems that soon it would start consolidating and would be ready to rise again. Currently, the stock has been trading below its 20 day moving average (DMA), 50 DMA and 100 DMA of 3991p, 4003p and 3933p respectively. The immediate support and resistance of the stock lies at 3845p and 4065p respectively. But, in case the stock goes below 3845 as well, then it may test lows up to 3600p as well. The stock is at a very crucial point and traders shall keep an eye at the respective levels and accordingly initiate fresh longs. In case the stock sustains the support at 3845p, then traders or investors can start building fresh long positions, otherwise they should wait for its consolidation and should accordingly build their positions because the medium term to long term view of the stock is bullish. As per the technical indicator, the stock formed a ‘doji’ candlestick pattern which indicates indecisiveness amongst the traders.
Now let’s throw light on the full year 2016 financial results of the company. The company reported FY’16 revenue at £220 million, up by 15% yoy and the growth is seen across all the business segments. The underlying operating profit and underlying earnings per share are up by 15% and 18% respectively. The company reported strong growth in operating profit mainly because of cost control and organic growth.
The company also returned £131.3m to the shareholders through buyback and dividend distribution. As per the management, 1 million UK residential properties advertised on Rightmove which is a third more than on any other portal. Also strong traffic growth was witnessed with visits up by 10% averaging over 120 million visits per month and time on site was up by 5% to nearly 1 billion minutes per month.
The company’s chief executive officer, Nick McKittrick, commented on the results, “Rightmove continues to be the place that home movers turn to first, with nearly 1.5 billion visits in 2016, up 10% on last year. Home movers spent nearly a billion minutes every month searching and researching homes on Rightmove, the only place you can see almost the entire UK property market. Our continued innovation and audience growth is delivering even greater exposure for our customers’ brands and properties. We are adding further value through our data, advertising products and productivity tools and by building closer relationships with customers to support their ambitions. Our customer numbers grew by 2% to reach an all-time high of over 20,100 and with customers spending more on our products, our revenue increased by 15%. With consumers and customers becoming increasingly digital our clear market leadership coupled with the value of our products and data positions us well for the future”
According to the management guidance, the outlook for the UK online property advertising market remains positive, despite the uncertainties stemming from the result of the EU referendum. With average revenue per advertiser continuing to grow the Board remains confident of making further progress in 2017 and beyond.
Based on the above discussion, the management guidance and our own estimates, we estimate Right move PLC’s 2017 revenue will be £242 million (£220 million for fiscal 2016) and the operating profit will be £179 million (2016 operating profit was £162 million). Our estimates are conservative and assume 10% year-over-year growth in sales and a margin for earnings before interest and taxes (EBIT) of 74%. In the past fiscal years also, operating profit margin on the topline has been in a range of 70%-73%. Please find below the earnings outlook of fiscal 2017:
From 2013 through 2016, Rightmove plc. has traded at an average enterprise value by sales multiple of 17.8x. That assumes a multiple of 18.0x to calculate the target price. Please find below the valuation outlook:
We set ‘Hold’ recommendation on Rightmove Plc with 3 months to 6 months target price of 4530p