RBC Capital Markets starts ZPG at 'outperform'

RBC Capital Markets initiated coverage of ZPG at 'outperform' with a 410p price target, saying the company has superior growth to its internet classified peers and yet trades at a discount.

"We forecast the cross-sell opportunity will add 21% to revenue by 2020, placing us 6-9% above FY18-19e EBITDA consensus," RBC said, adding that acquisitions have diversified the group's revenue mix and increased its total addressable market by more than four time, positioning it favourably among peers.

It pointed out that ZPG has expanded its product range as a result of its acquisitions, now offering software, website, print and data services in addition to marketing.

In addition, it said that the MoveIT tool - a digital platform for agents to generate additional service revenues - has the highest potential revenue upside.

"We assume MoveIT adds 4% to ZPG's revenue and 14% in our bull case. At present, a handful of agents are generating £3,750 per month from referrals, more than covering the subscription cost of their software (e.g. £220 per month). This would imply a significant 28% revenue upside to the Group alone if applied to 5k agents."

RBC also argued that the threat from OneTheMarket is diminishing. "If OnTheMarket successfully grows its market presence by investing sufficiently in brand awareness and building its customer base, the property portal may succeed in undermining the pricing power of ZPG and Rightmove.

"However, we lack confidence in OnTheMarket’s ability to do this, particularly because it lacks a differentiated proposition to consumers or estate agents."

At 1020 GMT, the shares were up 3.7% to 343p.