Company Overview: Domain Holdings Australia Limited (ASX: DHG) is a real estate media and technology services business. Its core focus is on the property market of Australia. The company was listed on ASX in November 2017. The company had acquired 100% of the share capital in Insight Data Solutions Holdings Pty Ltd and its subsidiaries in October 2021, which marks a step forward in executing on its marketplace strategy and expand its addressable market.

DHG Details

DHG Rides on Robust Product Adoption & Buyout Synergies:  The company has maintained a steady business strategy and responded well to the changing environment. DHG remains well placed to leverage on the rebounding property environment. The company’s robust results reflects its ongoing strategic focus to increase shareholder’s value and enhance customer’s experience. In 1HFY22, the company witnessed growth across every revenue line, and 53% EBITDA growth on an ongoing basis, thus driving impressive results across its Marketplace.

 Sneak Peek at 1HFY22 Result Results:

• Impressive Top-Line Performance: For 1HFY22, the company reported revenues of $175.3 million, up 27.9% from the prior corresponding period. Its sales were positively impacted by accelerating the delivery of its Marketplace strategy across the business, 19% surge in controllable residential yield, and record depth penetration.
• Robust Bottom-line Numbers: Net profit after tax for the period came in at $26.1 million, and earnings per share stood at ~4.5 cents, depicting a rise of ~34% each, respectively, on a year over year basis.
• Margin Expansion &EBITDA Growth: Trading EBITDA during 1HFY22 came in at $61.0 million, up 14.2% on pcp, whereas ongoing EBITDA increased a whopping 53% on pcp basis. Notably, trading EBIT in 1HFY22 came in at $44.6 million, up 28.5% on a year-over-year basis. The results were positively impacted by the timing of the JobKeeper grant and repayment, benefits and costs of Zipline, and voluntary employee program during the initial phases of the COVID-19 pandemic. Markedly, the company delivered margin expansion across every segment in 1HFY22, with the ongoing core digital margin of 50.9%.
• Liquidity Details: In 1HFY22, the company’s operating cash inflow stood at $28.95 million, up from $10.38 million reported in the year-ago period. As at 31 December 2021, the company had cash of $52.58 million, with $2.47 billion as total debt on the balance sheet. In 1HFY22, cash from trading came in at $44 million, up from $33.5 million reported in 1HFY21. The company declared a dividend of 2 cents per share (100% franked), paid on 15 March 2022 to its shareholders.

Financial Summary (Source: Analysis by Kalkine Group)

Key Metrics: For 1HFY22, DHG reported net margin of 12.4%, compared to the industry median figure of -3.4%. EBITDA margin came in at ~34.8%, compared to the industry median figure of 16%.

Profitability Profile (Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form around 70.41% of the total shareholding, while the top four constitute the maximum holding. Fairfax Media Ltd and Fairfax SPV No.1 Pty. Ltd. are holding a maximum stake in the company at 44.28% and 14.76%, respectively, as also highlighted in the chart below:

(Analysis by Kalkine Group)

Key Risks: The company’s financial performance might get impacted by the change in customer preference and supplier concentration risk. The company operates in the extremely competitive market and hence may result in price conflicts in the case of undifferentiated products. Further, industry players are encountering margin pressure owing to high COVID-related costs. This apart, companies’ constant attempts to expand supply-chain network involve heavy investments, which might hurt margins, going forward. Further, a leveraged balance sheet, integration risk, and adverse currency fluctuation risk add to the woes.

Outlook: In 2HFY22, the company expects a robust year-over-year growth in new ‘for sale’ listings, thus indicating continuing favourable listings momentum. The impressive results of DHG so far, depicts its continuous focus to invest in its Marketplace strategy, while maintaining a disciplined investment approach, and commitment to ongoing margin expansion. For FY22, the company expects to increase its ongoing costs in the low-teens range from the FY21 levels, which includes the impact of the JobKeeper and Zipline expenses. The company is committed to sustain its track record of well-organized cost management to take account of the trading environment.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has corrected by ~23.61% and is trading lower than the average 52-week price level band of $3.68 - $6.03, offering a decent opportunity for accumulation. The stock has been valued using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight discount to its peers, considering the supply chain disruptions, leverage balance sheet, competitive landscape, etc. For this purpose, peers like REA Group Ltd (ASX: REA), Seek Ltd (ASX: SEK), and others have been considered. Given the company’s track record of rewarding shareholders through dividends, decent revenue and earnings profile, encouraging long-term outlook, current trading level, upside in valuation and key risks linked with the business, we give a “Speculative Buy’ recommendation on the stock at the current market price of $4.08 as of 18 March 2022, 1:04 PM (GMT+10), Sydney, Eastern Australia. Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

DHG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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