Rightmove still in play after REA walks away, analysts say

Rightmove may have seen off Murdoch-owned REA’s unsolicited bids for the company, but the saga is likely to set more would-be bidders on the property platform’s tail, analysts have said. 

Its share price fell about seven per cent at the start of this week on news that Australian property firm REA had walked away from the bid, but still sits around 12 per cent above its pre-offer level at the end of August.

Rightmove has held onto its takeover premium, suggesting investors expect another suitor to come along “with deeper pockets than REA group,” XTB analyst Kathleen Brooks said. 

Dan Coatsworth, investment analyst at AJ Bell, said: “The past month’s bid action has put the stock on more investors’ radar” and a “greater number of investors will now be looking closer to see why REA was so desperate to buy it.” 

“[REA] was never going to win with a stingy cash-and-shares offer… It needed a knock ‘em out the park premium-priced bid to win over the company and its shareholders, and that didn’t materialise,” Coatsworth added.

Rightmove has made it abundantly clear that any bid would have to be higher than what REA had pitched to the property platform.

Rightmove repeatedly slammed the Australian group’s offers as “undervaluing” the company. 

REA ended up offering a final cash-and-shares offer of about 780p, a significant premium to Rightmove’s pre-battle share price of 555p but far below what analysts have suggested the company is worth, which is upward of 800p per share.

And it deserves a high price. The company commands 85 per cent of the online property market in the UK, and has a profit margin of over 70 per cent, the highest in the FTSE 100.

Analysts at Panmure Liberum agreed that REA’s offer was “opportunistic”, but said the group had “highlighted the value on offer [with Rightmove]”. 

“We see this saga as underscoring the valuation gap that had opened up in the shares following CoStar’s acquisition of OnTheMarket”, analysts said, adding that Rightmove was trading at 20 times its price-to-earnings ratio at the time of the REA’s bid.

Fund manager Iain McCombie at one of Rightmove’s biggest investors, Baillie Gifford, said last month that “Rightmove is the cheapest property portal in the world by a margin” but didn’t rule out a sale if a higher bidder came along. 

“We’re not going to sell that cheaply because it is a unique business and has a dominance there in this market,” McCombie said.