Indiscriminate sell-offs can provide good entry opportunities into quality stocks. In our view online property portal Rightmove (RMV) is one such company after taking a material hit in the fall-out from Brexit.

Down more than 20% since the shock result of the referendum was announced the shares, if not cheap, are at least considerably cheaper than they were. Trading on 22.8 times 2017 forecast earnings, it is at a significant discount to its US peer Zillow (ZG:NDQ) which is on an earnings multiple of more than 60.

The method by which we look for a new home and advertise existing properties has changed beyond all recognition in the last 15 years. Where once we scanned the property sections of local newspapers and panels in estate agent windows we now rely on the internet, like many aspects of modern life.

Rightmove was an early entrant into this space. Launched as a joint venture at the turn of the millennium by Halifax, Countrywide (CWD), Connells and RSA (RSA), it floated in March 2006.

First mover

Leveraging this first mover advantage, the company has built a position as the market leader in this space with a share upwards of 80%.

We have discussed a number of times how this market leading position creates a virtuous circle for the company. Because its site has the most listings it is the one most prospective property buyers go to when looking for their next home. This makes it a must-have product for estate agents and results in significant pricing power.

Rightmove operates a subscription based model under which it is paid an annual fee by agents to list their properties on the site. Liberum reckons the company can triple average revenue per advertiser (ARPA) from the 2015 level of £754 per month in the long-term.

The broker reckons the annual subscription fee is equivalent to the commission earned on three property transactions. With limited capital requirements it is able to generate healthy cash flow and strong margins.

In terms of sentiment, the vote to leave the EU is unhelpful but it is important to remember that Rightmove is not affected by the volume of housing transactions but by the number of estate agents operating in the UK. Significantly it continued to grow through the last big downturn and it should also benefit from a continuing structural shift in the market.

Investment bank Berenberg estimates £550 million is spent on property advertising on a yearly basis and around 50% of the total is conducted online. It reckons £195 million spent annually on print could shift to online in the coming years.

Growth: MEDIUM

There is scope to grow average revenue per advertiser significantly from current levels.

Risk: MEDIUM

A sustained housing market downturn could lead to a reduction in potential clients.

Quality: HIGH

Capital light model, significant cash generation, market leader.

BREXIT BENEFIT

A Brexit-related housing downturn could be helpful in two respects. First, Rightmove’s role as a marketing tool will become increasingly important to agents. Second, if estate agents do look to rationalise their spending they are likely to first remove listings from other portals and stick with Rightmove given its strength, potentially boosting its market share.

Although barriers to entry look limited on the surface, the failure of agent-backed challenger OnTheMarket to break Rightmove’s stranglehold in online property marketing since its launch in January 2015 demonstrates the difficulty in unseating its dominant position.

Arguably OnTheMarket’s rule that an agent could only list on one other site (effectively Rightmove or Zoopla (ZPLA)) actually strengthened the former’s hand.

Right move (RMV) £35.04

Stop loss: £28.03

Market value: £3.2 billion

Prospective PE Dec 2016: 25.8

Prospective PE Dec 2017: 22.8

Prospective dividend yield: 1.4%

Bid/offer spread: 0.4%

Analyst price target: £50*
*Liberum, 24 Jun 2016