City analyst upgrades Zoopla amid doubts over OnTheMarket recruitment

A City analyst who has until now been very positive about OnTheMarket’s prospects appears to have undergone a change of sentiment.

William Packer insisted to EYE, however, that he has not done an about-turn.

He is one of two City analysts to have upgraded Zoopla ahead of its full year results due on Wednesday morning, both made in the light of Zoopla’s acquisition of uSwitch as well as their views on OTM.

Packer, of Exane BNP Paribas, has moved from an ‘underperform’ rating on Zoopla to a ‘neutral’, while Investec has raised its recommendation from ‘sell’ to ‘hold’.

Both analysts have commented on OnTheMarket, with Packer saying that he expects OTM to be “unsuccessful” in reaching its target of 7,500 agency branches.

However, Packer’s report to investors says that OTM’s current letter of intent recruitment campaign is understood to have launched in March, while his covering letter refers to “seven months”.  In fact, OTM’s third letter of intent campaign was not launched until June.

He also talks about OTM reaching “7.5k letters of intent target”. However, OTM has previously said that is the target for total support – ie, both contracted offices and letters of intent.

OTM has also previously said that a tipping point could be reached when it achieves the milestone of 7,500 contracted offices, in terms of the battle with Zoopla for most inventory, if the new members choose Rightmove as their ‘one other portal’ – as almost all existing OTM agents have done.

Packer – whose report does refer to OTM’s successful launch and its subsequent resilience – said that the “threat of another tranche of member losses” to OTM had reduced.

He went on: “Based on conversations with our network of estate agent contacts, and with Agents Mutual at under 1k letters of intent after seven months of recruitment, we remain cautious on its prospects for success and expect the challenger to be unsuccessful in reaching its 7.5k letters of intent target.”

Packer said he expected the portals’ current status quo to hold, with OTM taking a “significant” third place.

However, Packer said he remained “cautious” of Zoopla’s longer-time pricing power, with its inventory still 25% below what it was in November 2014.

Although Packer’s position on OTM sounds like a radical shift in sentiment, he insisted to EYE that nothing had really changed.

However, he said of OTM’s latest update that he found its recruitment figures “underwhelming”.

Steve Liechti of Investec, in his note to investors, said he was still concerned about the widening gap between Zoopla and Rightmove, as well as the “persistent drag” from OnTheMarket.

He said that OTM was weakening Zoopla’s market position against Rightmove, with lower inventory, traffic and questions as to the quality of leads. However, Leichti said he still believed Zoopla offers a return on investment and that its model remains strong.

He said that net churn of agents to OTM stablilised in August and September, and he did not “expect significant further loss with limited OTM traction in terms of membership growth and visitors”.

Liechti said: “Although OTM looks likely to stay, we believe our forecasts already account for this.”

Investec is forecasting Zoopla to reveal £44m in pre-tax profits on a turnover of £107m, increases of 15% and 33% respectively,

Meanwhile, in yesterday’s Sunday Times “Inside the City” column, Danny Forston said: “Zoopla should be almost dead by now, shouldn’t it?

“In January, estate agents fed up with handing over great wads of cash to Zoopla and rival Rightmove branded together to set up a rival listing website: onthemarket.co.

“Don’t worry, I’ve never heard of it either.”

His piece ends saying: “Zoopla isn’t dead. On the contrary.” He advised readers to buy.

The Exane report is here

Originally posted here.

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