Barclays stays at 'underweight' on Rightmove, prefers AutoTrader

Analysts at Barclays sounded a cautious note on shares of Rightmove, pointing out how they were continuing to trade at a premium to the second-tier index even in face of slower growth.

Investors looking for exposure to growth if Brexit fears abated should do so elsewhere, the broker said, namely AutoTrader.

For starters, the property website's latest full-year numbers were not "clean", posting a small beat on earnings per share, but only thanks to New Home Developments.

As well, the number of UK agents had fallen during the back half of the year and the situation was likely to worsen, alongside stagnant online agent penetration and clear end-market pressures on bricks and mortar.

"Taking a step back, this remains a very high quality business in a tough market, in our view. But growth is slowing - we forecast 7% EBIT growth and 9% EPS growth post buyback this year, and there is no earnings momentum," Barclays said.

In terms of valuation, the shares were on an estimated 2020 price-to-earnings multiple of 22.0 times, in-line with its historical average against the FTSE 250 "despite markedly slowing growth" and the likes of AutoTrader on 19.0 times earnings.

According to Barclays, AutoTrader was not only cheaper, it was also growing more, its business model was more tied to end market volumes and over the longer-term it had more levers that it could pull on in adjacent markets.

The broker kept its recommendation on Rightmove at 'underweight' and its targe price for 420p.

Analysts at Deutsche Bank on the other hand were more upbeat, telling clients that concerns about competition chipping away at Rightmove's leadership position were misplaced.

The drop seen in the number of agency branches was mainly to do with one large client going into administration towards the end of the previous year.

However, they conceded that the New Homes arm was "a less predictable revenue stream", which meant markets were treating it with greater caution, despite what sounded like a strong outlook for the unit.

Deutsche was at a 'buy' on Rightmove with a target price of 530p.