The Investment Column: Investors should make the right move and get out of property website
Tuesday 16 May 2006
Our view: Sell
Share price: 348p (-12.5)
The property website Rightmove certainly seems to be making all the right noises as far as the City is concerned. Yesterday came news that the total number of estate agency offices advertising properties on Rightmove.co.uk had soared by more than 1,000 since the start of the year.
Membership of the site now exceeds 9,700 offices with more than 680,000 properties advertised for sale and rent at any one time. This represents 70 per cent of all estate agency offices in the UK, up from 62 per cent at the start of 2006. Rightmove makes money by allowing them to advertise on its site in return for a monthly feel.
It also hopes to cash in on government plans to have home sellers prepare an information pack that includes basic legal documents and a mini survey. As it stands, this attempt by the Government to simplify the house-buying process is expected to come into force from the summer of next year. Rightmove has already won agreements to prepare the packs on behalf of estate agent Countrywide, HBOS's Halifax and Skipton Building Society's Connells. The trio are all major shareholders in the company and together they account for about 20 per cent of a market which analysts believe could be worth as much as £1.5bn to Rightmove.
That's the good news. Now the bad. There is a danger that the Government's timetable for implementing the Home Information Pack (HIP) reform will slip. Rightmove's profit forecasts to a large extent rely on HIPs and should this happen it is very likely to prompt major downgrades. Even more worrying are noises coming from the Conservative Party, which not only opposes HIPs but has suggested it would scrap them if elected.
This starts to make Rightmove shares, down 12p to 348p, look like a risky proposition. However, it is their current valuation that makes them a total turn-off. The group made an operating profit of £8.7m last year. This is forecast to rise to £14.4m by the end of 2006. That leaves Rightmove, which floated in March, trading at a whopping 73 times historic earnings and 44 times forward earnings, indicating that it is grossly overvalued. Exiting the stock is the right move for investors to make.
Our view: Buy
Share price: 862p (-23p)
The building equipment rentals group Speedy Hire made its biggest ever acquisition yesterday. It bought LCH Generators, a private UK-based generator hire company, for £59m. The deal, to be financed from borrowing, will take the total number of generators Speedy Hire has on offer in this country to 4,000.
Analysts across the board applauded the acquisition. And rightly so. LCH is an impressive company. It has grown at an average rate of 20 per cent over the last five years, easily outperforming rivals.
Analysts believe the tie-up will create cost savings and be 5 per cent earnings accretive next year. That means the takeover will boost earnings by 5 per cent even after the interest on the extra borrowings has been factored in.
These days Speedy is benefiting from a fundamental shift in the construction industry. Builders no longer buy equipment but hire it instead. Ten years ago, around 80 per cent of kit was owned by contractors compared with less than 40 per cent today. One of the main reasons for this trend is that owning the equipment and keeping it up to date has become more expensive because of increasingly onerous health-and-safety regulations.
This trend is unlikely to change - if anything it will accelerate over the coming years. Speedy shares have more than doubled in the past two months but at 14 times 2007 earnings are worth holding on to.
EBT Mobile China
Our view: Buy
Share price: 31p (-0.25p)
EBT Mobile China is a Chinese version of Carphone Warehouse. The company has 144 outlets in 15 cities, primarily within hypermarkets run by France's Carrefour and Germany's Metro. Analysts expect the number of shops to rise to 197 by the end of the year.
Yesterday, came news that the group had enjoyed a 93 per cent rise in sales during China's week-long Labour Holiday on the previous year. EBT's mission is to become the leading end-to-end provider of mobile products and services in China and it looks to have made a good start. The group's listing last September gave it access to capital to fund growth.
However, having its shares traded in London also gives it a tradable currency which it can use for acquisition. China's mobile phone retail sector is very fragmented - there are more than 3,200 retailers in Shanghai alone - making it ideal for a player such as EBT to consolidate.
Given that China's economy is booming while less than a third of its population have mobile phones, there can be no better place to be a mobile phone retailer. Buy.
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