Rightmove could be ripe for take-over, says broker

An investment broker is tipping the purchase of shares in Rightmove.

Despite speculating on whether there will be a 32%, 50% or 70% drop in estate agency clients between 2007 and the end of this year, Teathers says that Rightmove will still produce profits.

And it says that Rightmove is exposed to a strategic bidder “more than at any other time”.

The report speculates that both the Guardian – which has money to spare since selling AutoTrader – and the owners of The Times could be interested. Both groups already own property portals, and Teathers argues that there is room for all portals to grow, given the migration of advertising from print.

However, with its striking lead in estate agency numbers and consumer traffic, Rightmove looks by far the most attractive.

Teathers says that Rightmove has maintained its lead despite the “considerable resources” of its competition in the form of the Daily Mail, Guardian and News International groups. It also argues that a recessionary period should limit new entrants.

The report adds that Rightmove is not the most expensive of portals, estimating that existing users of Rightmove pay an average £326 a month and new entrants £495. It estimates that typical users of Primelocation pay £519, although their properties also appear on FindaProperty.

The report also bases its buy recommendation on an assumption that there will be evidence “of some form of housing recovery … before the end of the year”.

However, it admits that the main risk to Rightmove is the loss of subscribers.

It is expecting that when Rightmove reports its interim results on February 27, with the full results out on May 6, it will reveal an overall 10% fall in customers, down to 17,400, but a 20% fall in estate agents.

Teathers also expects a further 10% fall in overall customers this year, with a further 15% drop in estate agents.

However, the report also looks at the possibility of a 50% fall in estate agency and developer clients, and a 70% fall. It believes that 50% would be a more plausible worse case scenario than 70%.

Even with an unlikely 70% fall, Teathers says that Rightmove would still be capable of delivering profits.

It also points to the fact that two out of Rightmove’s top six clients are due to renew their long-term agreements this April, but that the rest run until 2010 or later. These top six account for 27% of Rightmove’s total branches.