REA Group Limited
REA Business Details
REA Group Limited (ASX: REA) is a leading global digital advertising business, specializing in property with more than 2,800 people working across three continents. REA Group runs Australia’s leading residential and commercial property websites namely, realestate.com.au and realcommercial.com.au.
H1FY22 Result Performance (For the Period Ended 31 December 2021)
- The group has recorded 37% growth in operating income from core operations to $590.4 million in FY21, up by 37% YoY. It includes the consolidation of the REA India from 1 January 2021 and Mortgage Choice from 1 July 2021. However, excluding the effect of acquisitions, core revenue grew by 25% in FY21.
- Core operating costs, excluding acquisitions increased by 17% during the period, which reflects reduced operating costs in the prior period.
- Resultantly, EBITDA from core operations of the group increased by 27% to $368.0 million and net profit from core operations attributable to owners of the parent improved by 31% to $225.8 million.
- The Board declared an interim dividend of 75.0 cents per share fully franked that showed an increase of 27% on the prior year.
Source: Company Reports, Analysis by Kalkine Group
Key Risks
REA operates in a highly competitive market. Its business model could be impacted by the development of new technologies and higher competition from existing or new sites and apps. Further, its group business activities particularly the real estate listings and financial services are extremely reliant on the exposure to macroeconomic, regulatory, legal, and geopolitical conditions across its operating markets viz, Australia, India, and Asia.
Outlook
The Group generated positive operating cashflows and traded profitably for the half-year period ended 31 December 2021. The directors expect this to continue for the near future. The Group strengthened its liquidity position by entering a new syndicated facility, replacing the previous facility. Further, the company highlighted that residential property market conditions remain positive, with high levels of buyer enquiry reinforced by improved supply. FY22 operating cost growth is expected to be of low-double digits, against its earlier expectation of high single digits growth, reflecting an increase in revenue-related variable costs.
Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)
Technical Overview:
Chart:
Source: REFINITIV
Note: Purple Color Line Reflects RSI (14-Period)
Stock Recommendation
The stock has been valued using a Price/EPS multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average) considering its growth strategies and pivotal investments to drive growth.
Considering the aforementioned factors along with decent outlook and liquidity position, we give a “Buy” recommendation on the stock at the current market price of A$130.140 per share (Time: 10:36 AM (GMT +10), Sydney, Australia) as on 21st February 2022.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined:-
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices
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