Morgan Stanley cuts forecasts for Rightmove, Auto Trader and Zoopla

Morgan Stanley cut its forecasts and price share targets by varying degrees for internet players Rightmove, Auto Trader and Zoopla, but saw a higher price for Just Eat.

UK internet stocks are still benefitting from structural growth, the bank said in a note to clients, also offering high margins and cash returns.

"Macroeconomic impacts frequently accelerate online transitions and our marketplaces still offer good value to their underlying industries with the take-rate of revenue at circa 6% for estate agents, 8% for used car dealers and 13% for takeaway restaurants," Morgan Stanley's analysts wrote.

They added that they we are "not calling the bottom" of this market.

"Uncertainty is high and if macro forecasts are worse than feared, stocks could derate further. In the 2008 downturn, US, UK and Australian internet stocks indiscriminantly fell below 10xEV/EBITDA."

For car reseller group Auto Trader there was a 2% cut to 2017 expected earnings and a trimming of the target price to 460p from 490p.

Auto Trader's 'overweight' rating was reiterated and it is the top pick for the subsector as the company's top line is well protected by subscription-based revenue, with the business offering room to cut costs and the shares supported by cash returns.

"Historically, a free cash flow (FCF) yield above 5% has been an attractive entry point for online classifieds and Auto Trader now trades on 5.5%," the analysts said.

Estate agency marketplace Rightmove's earnings were downgraded 8% and its price target cut to 4,200p from 4,500p, though peer Zoopla's earnings estimates for 2017 were lifted 3% but the PT trimmed to 300p from 310p.

Rightmove was still rated 'overweight' and Zoopla at 'equalweight'.

"Operationally, we see Zoopla as most at risk given its weaker competitive position," the analysts said.

For fast food specialist Just Eat, on which an 'underweight' rating was retained on structural concerns, there was no changes to forecasts but its PT was lifted to 375p from 360p.