Online property advertiser Zoopla (LSE: ZPLA) today released upbeat results for the year to 30 September. Pretax profit increased by 17% on the back of rising revenue and, crucially, higher average revenue per advertiser. This, plus growth in membership numbers, helped to push the company’s revenue up by 34% to over £107m. Meanwhile, the company’s price comparison website uSwitch is also performing well, with strong performance in all verticals being recorded.
Clearly, there are concerns surrounding the UK property market and whether it is becoming unaffordable. Furthermore, the recent announcement of a 3% stamp duty surcharge on buy-to-let properties and second homes has the potential to dampen demand for housing in 2016. And, with a new competitor within the property advertising space called OnTheMarket, Zoopla has a number of potential clouds on the horizon.
Importantly, these potential problems appear to be priced in to the company’s current valuation. Zoopla trades on a price to earnings growth (PEG) ratio of just 0.7, which indicates that the 29% growth in earnings which is forecast for next year is on offer at a very reasonable price. As such, it appears to be a worthy purchase, although there is scope for downgrades on its profitability.
Also having strong growth potential is Sky (LSE: SKY). It is set to benefit from a diversification of its services, with Sky Mobile being on the medium term horizon. This should allow the company to leverage its customer base and provide significant cross-selling opportunities. And, with Sky being financially much more stable following its merger with Sky Deutschland and Sky Italia, it now appears to be in a relatively strong position to compete with rivals on sports rights so as to differentiate its product.
Looking ahead, Sky is expected to increase its bottom line by 13% in the current year. With it trading on a PEG ratio of 1.4, it appears to offer good value for money and, despite yielding just 3.2%, it offers upbeat long term income potential. That’s because Sky currently pays out just 56% of profit as a dividend and this means that brisk dividend rises could be on the horizon.
Meanwhile, National Grid (LSE: NG) remains a top notch income play. The company’s shares currently yield 4.7% from a dividend which is covered 1.4 times by profit. This indicates that National Grid has sufficient headroom when making dividend payments to increase them by at least as much as inflation over the medium term.
Clearly, a real-terms rise in income may not hold huge appeal when inflation is hovering around zero. However, with a loose monetary policy having been in place for a number of years, growth in the price level could pick up dramatically over the medium to long term. As such, National Grid’s shares are likely to remain hugely popular and, with them trading on a price to earnings (P/E) ratio of just 15.4, they appear to offer upward rerating potential, too.
