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Mid-Cap

Two Online Stocks to Buy - Carsales.Com + REA Group

September 17, 2015 | Team Kalkine
Two Online Stocks to Buy - Carsales.Com + REA Group

Carsales.Com Ltd

Market Leading Position:

The company has a market capitalisation of around $2.5 billion and is the leader in providing new and used car classifieds in Australia with investments in overseas businesses which provide exposure to the fast growing regions of Latin America and Asia. It has recently, won a battle against its competitor, Carsguide, for misleading and deceptive conduct. Carsguide, which is half owned by News Corp, was found to have engaged in making representations in advertisements which accused Carsales of selling the contact details of customers by the Supreme Court of Victoria. Justice James Judd said that by making the representations through its advertising campaign, the defendant has engaged in conduct that is misleading or deceptive or likely to mislead or deceive the Australian public. This marks another step in the fight by the company to maintain its market leading position.


 

Results FY2015:

The financial results for FY 2015 delivered another record for full-year performance. Operating revenue at $ 311.8 million was 32% up compared to the previous year while EBITDA was up 12% to $ 154.3 million. The board of directors declared a fully franked final dividend of 19.1 cents per share made up of a final dividend of 17.7 cents per share and special dividend of 1.4 cents per share which was 10% up over the previous year.


Financial Overview (Source: Company Reports)
 
CEO and managing director Greg Roebuck said the revenue continued to be a major area of focus and this was demonstrated by the revenue performance in FY 2015. He also pointed out a number of operational and strategic highlights for the year. These included the earnings performance, the strong revenue growth from international investments in Brazil and South Korea, and the performance and growth in the core domestic business. Other features were the strong 14% growth in Data Research and Services, the 7% growth in dealer revenue, the increased private seller revenue and the acquisition of Stratton Finance which has been performing above expectations.
 
It is interesting to see that over the last two years, this company has gained only 35%, which is admittedly better than the 22% gain in the S&P/ASX 200 index. The current price at which the stock is trading is attractive in terms of the P/E ratio of 22.3 considering the EPS growth expected in the next year.


CAR Daily Report (Source: Thomson Reuters)

Add to this the performance for FY 2015 and the market leadership position, we would recommend a BUY for this stock at the current price of $9.61.

REA Group Limited

Results ending June 2015: 

The group has announced its results for the year ended 30 June 2015. The financial highlights from core operations include growth in revenues of 20% to $ 522 million, EBITDA growth of 27% to $ 285.8 million and net profit growth of 24% to $ 185.4 million. The EBITDA margin expanded from 51% to 55%. The reported net profit, which grew by 40% to $ 210 million, includes profits from the sale of marketable securities and the Squarefoot business and the share of losses from associates. The group CEO Tracey Fellows said that the Australian business continues its strong growth in revenues despite the listing volumes in the market in Australia declining by 4%. This has been achieved by providing customers with more choice and value and providing the 3.4 million customers using the sites every month with an outstanding user experience. The strategy to take this expertise internationally and to new markets continues to gather momentum and expansion has progressed with the move into the largest property market in the world, the US, as well as one of the world’s fastest growing markets, Asia with its iProperty investment. The board has declared a fully franked final dividend of 40.5 cents per share which is an increase of 16% over the final dividend for the previous year. The total dividend for the year is a 23% increase over the previous year to 70 cents per share.


 

Operations:

In Australia, the group operates the leading residential and commercial property sites realestate.com.au and realcommercial.com.au and agent customers have increased by 5% to 9922 for the year. The increase in revenues was achieved because of the uptake of premium pricing products and the introduction of market-based pricing despite the decline in total listings volumes. The commercial business recorded a growth of 9% because of the increase in the sales of premium pricing products. Revenue from the display media and property developer business grew by 25% because of the success of the project profiles product as well as owing to the media display advertising revenues.
 
In Europe, operations achieved revenue growth of 6% (10% in local currency terms) to $ 45.6 million and 85% growth in EBITDA to $ 9.7 million. Average monthly visits to the sites increased by 7% to 10.6 million. Asia is one of the fastest growing markets in the world and the company operates the myfun.com site and has a strategic investment in the iProperty Group Ltd. myfun.com supports the Australian listing business by highlighting Australian residential property listings to Chinese buyers and investors and providing leads to agents. The company has recently increased its investment in the iProperty Group Ltd to 21.33% as on 17 July 2015 and this company is now the market leader in Hong Kong, Malaysia, Indonesia and Thailand. In the United States, the company holds 20% of Move Inc., a leading real estate portal and since the investment was made, the new branding and high-profile marketing campaign has increased visits by 52% year-on-year to 34 million unique users. This makes the site the second-largest in the largest residential market in the world.
 
We were surprised by the market reaction wherein the share prices fell despite a pretty good set of results though they have recovered somewhat since then. In our opinion, the company is a good long-term investment not only because the current price is attractive but also because it has market leadership and is based on exciting growth plans, strong margins and a competitive edge.


REA Daily Report (Source: Thomson Reuters)

We would have no hesitation in recommending a Buy for the stock at the current price of $44.15.

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