Rightmove shares 'still too expensive', says RBC Capital Markets

Analysts at RBC Capital Markets raised their target price on real estate firm Rightmove from 440.0p to 520.0p on Tuesday, stating the group's 40% premium was "still too expensive".

RBC Capital said Rightmove has re-rated to 25 times 2021 enterprise value/underlying earnings estimates, compared to its historical average of 18 times, something it views as "steep".

"While we raise our price target to 520.0p, we retain our 'underperform' rating," said the analysts.

The Canadian broker stated its rating was largely driven by a "more cautious view" on the market outlook and an assumption that Rightmove extends a discount of 25% to its agency customers in October and November - when it expects the macro environment to "be more challenging" as government support fades.

"We view this premium as steep, particularly in light of uncertainty surrounding the macroeconomic recovery as government support unwinds," said the analysts.

RBC noted that key upside risks to its thesis were a rapid rebound in the property market following the lockdown as government support is able to contain the economic impact and prevent UK unemployment from rising materially.

It also acknowledged that Rightmove's pricing power may prove "more resilient" than expected and that innovation may result in greater product upsell.

However, it also noted that the key downside risk to its thesis was "a more severe recession" than it currently assumed in its forecasts.