What's new:
■ Heavily shorted since onthemarket.com launch
■ Acquisition of uSwitch for £160m
■ Strong fee increase against 16 per cent fall in client numbers
A week ago, more than 5 per cent of the equity in property-listing site Zoopla (ZPLA) was on loan to be shorted. The bear case was clear: the January launch of onthemarket.com, the website of non-profit group Agents' Mutual, would seriously damage at least one member of the Zoopla-Rightmove online listing duopoly, given the requirement for any estate agent to drop their allegiance to one of the two rival websites before joining.
A trading statement from Zoopla in February, which showed it had lost about 20 per cent of its UK estate agent clients, supported the bears' case. But the company has now fought back with the acquisition of uSwitch, the UK's leading energy and communications price comparison site, in a cash and debt deal worth up to £190m. uSwitch, which made £16.2m in cash profits on revenues of £63m last year, has enjoyed compound annual growth of 20 per cent since 2012, and at a stroke takes Zoopla into a broader home services market.
Zoopla included a first-quarter trading update in the announcement. UK agent numbers continue to fall - the year-on-year figures show a decline of 23 per cent. But that needs to be set against rising numbers of clients overseas and for newbuild, as well as 13 per cent growth in the amount Zoopla charges each client.
Peel Hunt says...
Hold. The acquisition is a bold corporate finance move, and looks like a good deal with a price tag of just 10 times uSwtich's cash profits. It should boost earnings immediately - a minimum uplift of £10m in post-tax profit - so there's significant upside to current forecasts. Operationally, there is also logic to the 'one stop shop' approach of combining the businesses. But there are many mix effects to consider, and as such our target price is under review. The leap in the share price and likely earnings growth should squeeze out the significant bear position that has encircled the company.
Numis Securities says...
Buy. The deal should increase earnings by 20 per cent in the first full year of ownership, and is a good fit with Zoopla's existing business as it will allow consumers to "research, find and manage their home". The company's trading update was reassuringly in line with expectations, with healthy fee growth and - more importantly - no further shocks or surprises on customer numbers. Full-year pre-tax profit is forecast at £42.9m, with earnings per share of 8.2p (rising to £49.6m and 9.5p in 2016).
