Investment Column: Stay put at Rightmove despite the slump

Henderson; Spirent
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The Independent Online

Our view: Hold

Share price: 1,039p (-27p)

Further evidence that the housing market remains lodged in the doldrums came from the Nationwide report on house prices yesterday. After rising by half a percentage point in March, Nationwide's house-price index slipped by 0.2 per cent in April.

In annual terms, prices were down by 1.3 per cent. And although recent mortgage-approval figures suggest housing-market activity may be edging off lows, the picture remains uncertain. Besides, in historical terms, the flow of credit remains fairly thin.

All this argues against investing in house builders and though there will always be exceptions, we remain cautious on the whole. That said, there are ways to play the housing market – and the property website Rightmove is one of them.

The company, which charges estate agents for listings on its ever-more popular web pages, boasts an enviable position in the online property sector. For many, it is the first port of call when it comes to searching for rentals or for places to buy. This trend will accelerate as would-be buyers seek to make the most of their limited ability to borrow by bargain-hunting.

Yesterday's interim management statement showed that the site continues to attract more and more visitors, with page impressions up by 15 per cent in annual terms over the first three months of the year. Searches on mobile devices were "over 200 per cent higher" in the same period.

Still, like a nervous home buyer, the valuation gives us pause for thought. Rightmove trades on multiples of nearly 25 times forward earnings, says Altium, which last night lowered the stock to sell for that reason.

However, though we agree that the shares aren't exactly cheap, we do not think the multiples are so prohibitive as to warrant such a bearish stance, particularly in light of the strength of the business. Don't move out yet.


Our view: Buy

Share price: 156.6p (-4.5p)

Henderson Group's first-quarter trading statement had no real surprise for investors yesterday. Assets under management of £60.5bn at the end of the period were 1.9 per cent down from the quarter before, but the main reason was the planned £1.5bn transfer of cash funds to Deutsche Bank's DB Advisors.

In the volatile markets of the first quarter, that performance was solid with decent flows into the company's absolute return funds and retail funds.

The main news was that Henderson is pressing ahead strongly with integrating Gartmore, the rival manager it bought last month. All staff at Gartmore – which nearly collapsed after one of its former star fund managers left amid an investigation by regulators – are working on Henderson's systems and the pace of integration is ahead of management's expectations. Gartmore had £1.2bn of net outflows during the period – an encouragingly low rate – leading to Henderson taking on £15.7bn of assets.

Royal Bank of Scotland analysts have the combined group trading on 12.9 times its forecast for 2011 earnings compared with a mid-cycle margin for listed asset managers of 15 times. That leaves scope for the Henderson to continue attracting new funds, to outperform expectations on fund outflows from Gartmore and to reap the benefits of the merger. Buy.


Our view: Buy

Share price: 135.8p (-5.6p)

Few punters outside the industry may have heard of Spirent, the UK telecoms-testing group, but its clients include big names such as Alcatel Lucent, Verizon and Cisco Systems.

The group put out its first-quarter numbers yesterday, which revealed pre-tax profits had risen by over a tenth, driven by demand for its services. Reported operating profit rose by 10 per cent to $23.7m (£14.4m), while revenues were up 14 per cent to $122.8m.

Not only that, the group is increasing investment in product development "to meet customer demand", and group order intake was up by 5 per cent. Chief executive Bill Burns expects the solid run to extend to the end of the year citing customer demand for testing "to enable the development and deployment of new technologies that drive the ever-evolving communications industry".

The results were pleasingly ahead of analysts' expectations, and the group has strong confidence for its performance into the medium term. Numis has Spirent on an ex-cash price of 16 times estimated full-year earnings which it said "feels like growth at a very reasonable price". We agree. Buy.