REA Group Ltd
A Quick Look at Q3 FY2019 Results: REA Group Limited (ASX: REA) is involved in providing property and property related services on mobile apps and websites throughout Australia and Asia. Recently, the company published its Q3 FY 2019 results ended 31 March 2019. During the nine months ended March 2019, the group revenue and EBITDA stood at $667.8Mn and $404.7Mn, reflecting a growth of 13% and 15%, respectively. The company communicated that the results for the Q3 and nine months to March 2019 have been driven by the strength of the Australian Residential and Developer businesses and inclusion of the Hometrack business which was not included in the pcp.
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Financial Results (Source: Company Reports)
In the half-yearly results ending on 31st December 2018, the company reported revenue with a rise of 15% to $469.2 Mn in HY19 in comparison to the prior period and the group EBITDA stood at $289.1 Mn in HY19, reflecting an increase of 19% on pcp basis.
What to Expect: The company stated that the market conditions are not going to improve in the short-term. The company is expecting a lower rate of revenue growth in Q4 against Q3, whilst the expense growth would also be lower in Q4 in comparison to Q3. The company expects that the Hometrack business would deliver the previous FY19 revenue guidance in the range of $14Mn - $16Mn and EBITDA between $6Mn - $7Mn.
Stock Recommendation: The company expects the rate of revenue growth to exceed the rate of cost growth for the full year, however, these growth rates would be broadly similar in the second half.On the stock’s performance front, it had generated returns of 26.26% and 37.18% in the time span of three months and six months, respectively and is trading close to 52-week higher level of $97.370 with higher PE multiple of 103.24x. Hence, considering the aforesaid facts and current trading level, we maintain our “Hold” rating on the stock at the current market price of A$96.220 per share (down 0.435% on 21st June 2019).
carsales.com Limited
Strategic Review of Stratton: carsales.com Limited (ASX: CAR) involved in online automotive advertising. The market capitalistion of the company stood at ~A$3.4 Bn on 21st June 2019. Recently, the company with the help of release dated 13th June 2019, updated the market about the strategic review and sale of its 50.1% holding in Stratton Finance Pty Ltd. In the asset finance and insurance market, the Stratton is a leading player and it assists its customers finance over $750 million of assets each year. The Stratton would be classified as a discontinued operation and a non-current asset held for sale in the FY19 financial statements. Stratton contributed $1Mn towards EBITDA in H1 FY19 on a standalone basis, which is representing around 1% of carsales’ adjusted EBITDA.
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Financial Snapshot of Stratton (Source: Company Reports)
The Vanguard Group, Inc. and its controlled entities have become an initial substantial holder in the company with a voting power of 5.029% on 30th May 2019.
In 1H FY 2019, SK Encar witnessed a rise of 22% in EBITDA as operating leverage is being achieved.It witnessed a growth of 20% in revenue in 1H FY19 on pcp basis. There was a good growth throughout all the key revenue channels of Dealer, Private and Display.
Prospects: In the January month, the domestic core business performance had remained solid apart from display advertising. The company is expecting an improvement in the performance for the second half. It is also expecting that its domestic adjacent businesses of tyresales and Redbook Inspect would continue to build scale.
It is anticipating a continued strong local currency revenue and earnings growth in the second half of FY19 in Brazil.However, it is expecting continuous good local currency revenue and earnings growth in the second half in South Korea.
Stock Recommendation: The company has been executing on its planned investment in marketing, innovation and technology in international businesses to aggressively pursue market leadership. On the stock’s performance front, it had generated a return of 9.82% and 28.24% in the time span of three months and six months, respectively. However, on a YTD basis the stock provided a return of 27.64% with PE multiple of 24.57x. Hence, considering the above-stated facts and decent prospects, we give a “Buy” recommendation on the stock at the current market price of A$13.760 per share (down 1.149% on 21st June 2019).
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