LGBR Capital LLP’s Post

Transcript

Hi, I'm Andy Brown. I'm here with my colleague Gavin Harvie. And we're going to talk about some of the small cap companies that we've been discovering from around the world Gavin, we've got a number of companies in our large cap portfolio which benefit from network effects. Companies like Visa, Booking.com and some others, which have got really strong competitive advantages as a result of that. Is that something that you think you can see elsewhere around the world? A recent purchase for the fund was the UK's Right Move. So it's better known as a real estate classified ads business. So they did an excellent job early on of really adding agents to the platform. The large number of agents led to many listings both for purchase and for leasing. And that really attracted the users. So today they now have an 85% share of time spent on classified ad portals for real estate in the UK. And companies such as On The Market or Purplebricks have really struggled to incrementally change that share over time. So when we think of the network, we think of network vitality. Vitality as measured by its penetration and its growth. The UK has 25,000 real estate agents. Rightmove have around 19,500 or 78%. So when you combine the 78% of the agents with the 85% of the time spent on property portals, you've got a very vital network where a lot of utility and value is offered to those participating in that marketplace. What does that market dominance enable Rightmove to do? Well, if you think about some of the new products they can add, one of the things a buyer of a home needs is probably a mortgage. So they can start to offer financial services products to homeowners. And also the lettings market is very buoyant in the UK. So increasingly they're adding new products for real estate agents to focus on the leasing market. And then that starts to bring them into the real estate agents' workflow. So it stops becoming a classified ads business and starts becoming a business which actually just serves the whole real estate ecosystem. Another huge opportunity for them is to take that platform and start to add the commercial real estate sector, which is a whole different market. Different dynamics, but ultimately could really grow their total addressable market. I think the key thing for us though of bringing it back to sustainable dividend growth is that we think the business can sustainably grow its earnings in the low teens. It's a very profitable business. It converts around 60% of revenue to cash and returns most of that to shareholders. So you're looking at a total distribution yield of around five combined with low teens sustainable dividend growth and a valuation now which is under 20 times earnings, means the prospective returns look excellent. It sounds to me like Rightmove is going from being an advertising platform to being a software company, which is a fascinating change over the history of that company.