The property market has seen major difficulties in the last few years. Soaring interest rates have put off many from selling homes, and from entering the market. With rates now potentially at the peak of the current cycle, could there be a wave of pent-up demand coming? If so, I like the look of this FTSE 250 company.
Rightmove
Rightmove (LSE: RMV), one of the major players in the UK’s property market, could be well positioned if activity picks up in 2024. The share price has been fairly volatile as the economic impact of the pandemic led to waves of uncertainty, inflation, and the highest interest rates in decades.
As inflation now comes down to near target levels, the Bank of England has hinted at interest rate cuts in 2024. This has led to a reduction in mortgage rates across the board. Many will be seeing this as the first opportunity to lock in a reasonable mortgage rate for a new home in years, and many first-time buyers will be keen to enter the market as homes become available.
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The company makes money from estate agents listing these properties online. Becoming the destination for many looking to a buy or rent a home has led to a healthy net profit margin of 56% in the latest quarter.
Excellent operations
With the last few years spooking many in the property sector, annual growth has been slower than usual. Rightmove has generally matched the sector average of 4.1%, with revenues also growing at 4.6% in the last year.
Difficult times in a sector often lead to the gap widening between the best companies, and the rest. Debt levels are often a major issue during these periods. Fortunately, the firm do not have this headache, being completely debt free for the last five years. This gives the company room to breathe where competition may be struggling to manage debt repayments. This also enables the investments and innovation needed to pull ahead.
Management execution
Operating efficiencies and excellent management really matter during this time, and the return on equity — reflecting the level of efficiency in the business — is extremely impressive at 268%, dwarfing the competition with an average of only 8.1%.
CEO Johan Svanstrom is clearly looking to take advantage of the recent declines in the share price, with a share buyback program announced in 2023 to buy 10.05% of all available shares. With the dividend yield of 1.5% also expected to rise over the coming years, the business appears keen to reward shareholders.
Risks
Of course, the property sector is always exposed to risks. With many expecting an economic downturn, cuts in interest rates may not be enough to convince people to enter the housing market. With a UK election widely expected later in 2024, there is likely to be some volatility in the sector as many homebuilders and investors wait for an outcome before making major decisions.
What’s next?
Overall, I expect there could be a real opportunity here. There may be some volatility in the next year for many FTSE 250 companies. However, with so many people potentially waiting on the side-lines for the right moment, I suspect the housing market could see some major activity in the coming years. Rightmove appears to be well positioned to benefit from this, so I’ll be adding it to my watchlist.
