House prices may be heading in the right direction, but the share price of Rightmove has done even better: up threefold since the start of the year.

Yesterday’s trading update from the FTSE 250 property search website went some way to explaining why. First, the number of new homes being advertised through Rightmove has been higher than previously expected. With housebuilders beset by cashflow problems, the City had assumed that the company’s revenues from this source — they pay monthly fees for each development listed — would come under pressure. As stocks of old developments were sold, the capital constraints on builders meant there would be little to replace them, it was feared. However, after this year’s recapitalisation of the sector through rights issues, the number of new developments being offered for sale has actually increased. At the same time, Rightmove has secured the custom of the only large housebuilder that had hitherto eluded it: Barratt Developments, which began advertising last month, and which should bring with it an additional 300-odd developments.

Second, estate agents, Rightmove’s principal source of revenue, have stopped going bust. Their number fell by about 20 per cent since the 2007 peak but since January have been steadily on the rise. Rightmove’s subscriber base for sales and lettings had recovered to 14,100 by the end of last month, up 8 per cent this year. Further, heavy cost cutting by estate agencies during the downturn, mostly through staff reductions, means that many are currently enjoying strong profits now that transaction volumes are heading higher. On provisional figures, Rightmove estimates that twice as many houses changed hands last month than in October of last year. The assumption must be that it would take a further severe lurch downwards in the housing market to imperil Rightmove’s estate agencies’ revenues once more, especially given that they typically account for less than 20 per cent of an agent’s advertising budget. That dynamic suggests that the structural shift of advertising spend from local newspapers to online rivals — of which Rightmove is by far the biggest — is yet to run its course.

There are other attractions. Rightmove has cut its own costs (by about £5 million a year) but has been able to increase its prices, which means it should benefit from operational gearing.

Equally, it is now sitting on net cash. This raises the prospect that Rightmove could resume share buybacks — it has previously mopped up £40 million worth of its own stock far below the current price — or perhaps pay a special dividend.

Either way, at 526p or 17 times next year’s forecast earnings, the shares remain reasonable value given the prospect of 20 per cent growth next year. Hold on.

Alfren

Like all oil explorers of its size, Afren is a bet on drilling success. The £660 million company has promising acreage in West Africa, particularly in Ivory Coast and Ghana, where its licence interests are close to the bumper Jubilee discovery of Tullow Oil.

But it is also a bet on reform of the Nigerian oil industry. Under the proposed Petroleum Industry Bill, the Nigerian Government would be able to renegotiate old contracts, impose higher costs on oil companies and repossess acreage that has yet to explored. The likely losers are established multinationals, such as Shell, ExxonMobil and Chevron, which, having faced disruption to production from militant attacks in the Niger Delta, would have even less incentive to invest in the region.

The potential winners include Nigeria’s state oil company, as well as smaller indigenous operators, including First Hydrocarbon Nigeria, in which Afren has a 40 per cent stake. For now, Afren continues to buy licences on its own account, yesterday acquiring additional acreage offshore Nigeria. But, given the recent strengthening of its balance sheet and stable and rising production (it targets 100,000 barrels a day by late 2012), it has scope for more. Confirmation of Afren’s move from AIM to the full list further enhances its appeal. At 92¼p, buy.

Alterian

It has famously been said that half of the money spent on advertising is wasted. The intention of a fast-evolving breed of software companies such as London-listed Alterian is to help marketers to find out which half.

Alterian develops applications targeted at so-called “customer engagement”: monitoring how consumers respond to marketing messages (whether from call centres, direct mail, e-mail or websites) but also how they discuss brands among themselves, something that the advent of blogs and social networking media has suddenly made possible. The message from yesterday’s first-half results is that corporate spending on that niche has not slowed. Sales in the six months to September 30 were up 28 per cent to £14.4 million. That figure was flattered by last year’s purchase of Mediasurface but, once stripped out, still implies a double-digit advance.

Alterian’s advantage is that about 60 per cent of sales are recurring, and retention rates are high (roughly 90 per cent). The hope must be that the company is able to keep costs flat, while accelerating sales growth through forging distribution deals with marketing agencies.

Alterian is clearly cash generative: its coffers rose to £7.3 million, despite the outlay on bolt-on acquisitions. Further, recent takeover activity (the purchase of Interwoven by Autonomy and Omniture by Adobe) testifies to the allure of its niche and suggests Alterian, too, could become a target. At 189p, or 13 times 2010 earnings, tuck away.

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