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Broker tips: Rightmove, Safestay, Provident Financial

By Iain Gilbert

Date: Monday 22 Oct 2018

Broker tips: Rightmove, Safestay, Provident Financial

(Sharecast News) - Rightmove got a boost on Monday as UBS upped the stock to 'buy' from 'sell' following the recent selloff.
UBS said the selloff - which saw the shares drop significantly since the June 2018 peak post the Silverlake bid for ZPG - was overdone.

"Rightmove shares reached a peak of £5.35 post the Silverlake acquisition of ZPG. Since then, they have fallen by 20%. In our view, this has created an opportunity to buy into an asset with significant pricing power and defensive characteristics at a reasonable valuation."

UBS said the decline in the share price reflects concerns that weakness in the UK property market could impact Rightmove revenues and that the company's dominant position could be at risk given new ownership of its competitors Zoopla and OnTheMarket, and their partnership with Facebook.

The bank argued that features of Rightmove's model protect it from concerns over Brexit and competition.

"Specifically, 1) Rightmove operates a subscription model that is not sensitive in the short term to transaction volumes and prices. 2) We think vendors will rarely award instructions to agents who do not use Rightmove, and 3) Rightmove's products are fully integrated with agent workflow and designed to increase share of instructions, a key agent KPI."

As a result, UBS, which has a 490p price target on Rightmove, expects the company to deliver a circa 8% top-line and 12% earnings per share FY18-21 compound annual growth rate.

Liberum upped Safestyle to 'buy' from 'hold' on Monday and boosted the target price to 80p from 50p as it now has much greater confidence in the recovery potential after the double glazing group signed a commercial agreement with its co-founder, Mitu Misra, who is working with competitor NIAMAC.

The company has entered into a five-year non-compete agreement with Misra, who will also provide services to support the recovery of Safestyle. Misra, who was party to the dispute involving NIAMAC, trading as SafeGlaze UK, will receive 4 million ordinary shares and a cash consideration of up to £2m.

"Today's agreement should help restore the group's capabilities in lead generation, sales and installation so that recovery is quicker than it would otherwise have been." Liberum said.

It argued that the agreement is likely to halt the momentum of NIAMAC and could lead to agents and employees returning to Safestyle. "This is likely to mean an acceleration in the recovery at Safestyle," it added.

"We understand that the non-compete arrangement means that Mr Misra will no longer play a role at SafeGlaze and will not be permitted to invest more resources into that business. This is likely to mean that at the very least SafeGlaze's momentum is halted. Without access to additional funds, SafeGlaze may struggle to carry out the rebranding required by the settlement reached in September 2018, in our view."

Liberum noted that at 56p, the shares only trade at around 2.8x peak earnings, suggesting very considerable upside if management can successfully rebuild the business to previous levels of activity.

The brokerage expects a small net debt position at year end of £2m, which should reverse as profitability is rebuilt.

Provident Financial's sub-prime bank and auto finance arms are making progress and while its doorstep lending unit continues to offer some concerns for analysts, there was optimism that a recovery is underway.

Broker Shore Capital cut its group earnings estimates for the full year and 2019 and 2020 by 5%, 5% and 4% respectively, which trimmed its fair value to 685p from 710p.

But, with the shares having fallen 7% since the start of October and 20% since July's interims, ShoreCap saw an upside of 25% and so upgraded its recommendation to 'buy'.

"While the continued delay in collections improvement at the home credit business was disappointing, this is largely a back-book issue that we expect to resolve itself in due course," ShoreCap analyst Gary Greenwood told clients in a note on Monday.

"Importantly, the back-book accounts for around one-third of gross receivables for the business, but these balances are now largely written down thus limiting the risk of a further drag on financial performance from higher impairments. However, where there will be an ongoing impact is from the book being smaller than expected and, therefore, impacting negatively on future revenue performance. We expect this will delay the return to full-year profitability until 2020."


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