Citi warms up to Rightmove by lifting its rating to 'neutral'

4th Mar 2015 11:19

Online real estate portal Rightmove has had its rating lifted by Citigroup, after the bank accepted it was a little too bearish on the company.Citi lifted Rightmove to 'neutral' from 'sell' following the company's earnings this week in which it reported a surge in profits and record numbers of visitors to its website.Rightmove's profits rose 26% to £122m last year on the back of a 19% rise in revenues to £167m. As such, the group raised the dividend for the year from 28p a share to 35p.Citigroup liked the full-year results - so much so, the bank declared that it was wrong to place a 'sell' rating."At the beginning of the year we set out a framework for the media sector that involved looking at earnings growth, upgrade potential and rerating potential. Rightmove screened as the 5th most attractive stock on the latter but we ignored it arguing that a low multiple vs. history was justified. This was a mistake," said Citigroup.To right a wrong, Citigroup raised its 2015-2016 earnings per share forecasts for Rightmove by 8%-10% in response to the improved profits. That resulted in a lift to the rating and the target price to 3,220p from 2,150p.Citi added that although near-term trends are robust for Rightmove, the bank still worries about the effect its 'On The Move' product has on long-term pricing power. Citi also said that higher marketing costs could, in time, depress margins which are at industry highs."With this in mind, while we conclude Rightmove may not be a 'sell', we are not convinced it is a 'buy' either, (so) 'neutral'," the bank said.As of 11:20 GMT, shares in Rightmove were up 40p or 1.35% to 3009p.