JPMorgan downgrades Rightmove, starts Purplebricks at 'overweight'
Rightmove was under the cosh on Thursday as JPMorgan Cazenove cut the stock to 'underweight' from 'neutral' and trimmed the target price to 4,168p from 4,183p, pointing to limited scope for earnings upside.
In the same note, the bank also initiated coverage of Purplebricks at 'overweight', with a 733p price target. JPM said the company's financials are "impressive".
On its assumption of a 15% market share by 2022, JPM forecasts a 17-22 revenue compound annual growth rate of 48% in the UK. For the international operations, it estimates a conservative 11% and 4% penetration by then.
"Marketing spend/launch costs are holding back profitability, but we expect the company to be profitable next year and to generate earnings before interest, tax, depreciation and amortisation of £190m by 2022."
As far as Rightmove is concerned, it said a rising share of online agents will accelerate pressure on commission rates for traditional agents, amplifying tough market conditions post Brexit. In this environment, it sees limited scope for earnings upside risk at Rightmove.
"We believe the property agent market faces significant changes over the next few years with the rise of new disrupters in the form of online agents. These players are benefiting from low fixed costs (as property costs are not incurred in the way a high street agent does and labour costs are more variable as agents are self-employed) which provides strong cost advantages. As a result, online agents charge a significantly lower fee and are rapidly taking market share."
At 1450 GMT, Rightmove was down 2.9% to 4,427p while Purplebricks was up 4.4% to 421.80p.