Barclays downgrades Zoopla, says valuation up with events

The bank said it still sees an attractive long-term story, but another near-term share price lift requires overly-optimistic assumptions on synergies – which are a full year 2017 story, not a near-term driver – or OnTheMarket crumbling quickly, which is not the base case.

Barclays said Zoopla’s trading update was evidence of the positive trends currently driving uSwitch, while the acquisition of Property Software Group highlights management’s “exciting long term vision”.

However, with uSwitch upgrades now in the numbers, the near-term focus returns to Property Services, which is still the key driver.

“Here we have cut underlying numbers and we anticipate both 1H and FY16 results to show only low single digit average revenue per agent growth, a reminder of the lack of pricing power for a battling no.2.”

Barclays reckoned the most likely outcome for Zoopla in full year 2017 is another year of very little ARPA growth and only a modest recovery in agents.

As a result, the valuation of around 17x 2017E earnings before interest, taxes, depreciation and amortisation on the core Property Services business is up with events.

At 1048 BST, Zoopla shares were down 0.5% to 277.90p.