Company Overview - REA Group Limited is an Australia-based company. The Company is engaged in digital advertising business specializing in property. The Company owns and operates the real estate and commercial property advertising Websites in Australia, such as realestate.com.au and realcommercial.com.au. It also operates international real estate advertising Website such as casa.it. The Company is focused to deliver effective online advertising solutions through its stable of Websites to help real estate agents sell or rent properties and win new listings. Its online advertising services are online advertising of residential and commercial properties for sale and rent.


Analysis - REA Group Limited (ASX: REA) posted a 21% year over year revenue growth to $384 million for the nine months ended on 31^st March 2015, boosted by the Australian residential depth revenue which rose by 38% yoy during the march quarter as compared to the same period in the prior year. The firm also achieved an EBITDA growth from core operation by 30% to $210 million as compared to $162 million in the nine months ended on 2014. But, the group’s national residential listing volumes across the Australian market decreased 7.2% during the march as compared to the March quarter in 2014, impacted by the early Easter break and elections in two states.


Group’s Nine Months Performance (Source: Company Reports)

News Corporation holds 61.6% interest in REA Group, and revenues from REA group will be contributed to News Corporation’s Digital Real Estate Services segment. Last year, News Corporation acquired the entire shares of Move, Inc., which operates realtor.com, a leading consumer facing real estate website, as well as engaged in a number of professional software and services products (like Top Producer, TigerLead and ListHub), for real estate professionals with advertising systems, productivity and lead management tools and reporting. News Corp acquired 80% of the interest, while the REA Group acquired a 20% interest in Move. Accordingly, News Corp granted REA Group with a put option that can be exercised at any time in the two years from the date of acquisition at fair value.
 
News Corporation did not perform well during the March quarter with the overall group posting a decline in revenues to 2,062 million and 6,492 million for the three months ended on March 2015 and Nine months ended on March 2015, against $2,078 million and $6,388 million of the respective periods in 2014.
 
However, the decrease in revenues was partly offset by the group’s Digital Real Estate Services segment performance, wherein the segment’s revenue rose $68 million, or 67%, during the three months ended March 31, 2015 against March quarter of 2014, driven by the acquisition of Move. Move added $73 million in revenues during the quarter. For the nine months ended March 31, 2015, revenues at the Digital Real Estate Services segment surged $141 million, or 48%, against the same period of fiscal 2014. The increase was driven by revenue contribution of $107 million by Move as well as higher revenues contributed by REA Group - $34 million boosted by increased listing depth product penetration in Australia and higher pricing.
 
As per the first half of 2015 highlights, REA group posted a 25% year over year increase to $261.5 million in first half of 2015, as compared to $209.4 million in the corresponding period of 2014. Meanwhile the group has improved its EBITDA margin to 55% during the period, as compared to 51% in first half of 2014. Earnings per share also increased by 34% to 71.8 cents as compared to 53.7 cents in the corresponding period of 2014. The group is also a good dividend player, and has increased its dividend per share by 34% to 29.5 cents in first half of 2015, as compared to 22 cents dividend per share in the corresponding period of 2014. 



First half of 2015 performance (Source: Company Reports)
 
Market Leader in Australia

Meanwhile, realestate.com.au continues to maintain its market leadership by achieving 92.8% of all residential property listings nationwide, way above as compared to its nearest competitor which got 67.3%. Moreover, realestate.com.au has a record of strong as well as a unique audience of 4.0 million in March 2015, which is more than 1.5 million as compared to the firm’s closest competitor’s customer base. Realestate.com.au attracted 35.3 million Average monthly visits per month as compared to its immediate competitor which had 10.8 average monthly visits YTD. The site is also successful in audience engagement who spend 5.6 times more time on the site, that is users spend 236,698 (‘000) minutes per month, as compared to 42,200 average (‘000) minutes per month. Even the total average monthly visits across Australian main sites, mobile sites and apps is 44.6 million which is more than double as compared to the immediate competitor’s 20.3 million total visits during the period. As per the first half of 2015 highlights, the group’s Australian main site visits and Mobile sites & apps rose by 10% and 15% to 24.8 million and 19.8 million respectively. 


Australian Site Visits by Platform (Source: Company Reports)
 

 
Expanding Global Footprint

Apart from Australia, REA Group has been expanding its presence in Europe through atHome.lu and immoRegion.fr, China through myfun.com, United States through Move, Inc and in Asia through iProperty Group Ltd (ASX:IPP).
The group has been making significant progress in Europe, posting a year over year revenue growth of 11% during first half of 2015. The regions average monthly ARPA rose 7% to €186 during the period as compared to €174 in the prior year’s corresponding period. Moreover, the regions average monthly visits improved by 16% to 10.3 million, against 8.9 million in first half of 2014. The group launched a new mobile website in Italy (casa.it) and witnessed an average monthly visits growth of 16% to 9.4 million in for the half-year ended 31 December. The firm’s sites at Luxembourg & France (athome.lu, athome.de, atoffice.lu and immoregion.fr) delivered an 11% growth of average monthly visits. In Asia, iProperty Group has a leading position in Malaysia, Hong Kong and Indonesia. The squarefoot business gas been encompassed with iProperty’s operations to strengthen its Hong Kong business. EBITDA from core operations for Australia surged 30% to $144.9 million in first half of 2015, as compared to $111.8 million in first half of 2014. For Europe, EBITDA from core operations increased 92% to $5.1 million during the period, as compared to $2.7 million in the corresponding period of prior year.


Segment Revenue (Source: Company Reports)

Management is also continuously making efforts to keep up with its dominant position and improve users experience on the site. The group’s Agent Profiles product gives consumers information on the expertise and experience of agents as well as offer customers with valuable leads and exposure. This product could already attract over 3.28 million views since its launch in last year. The firm launched utility connections services, Apple Watch app as well as continues to make international investments. The group invested $231 million in Move Inc. and over $109 million in iProperty during first half of 2015. This investments have decreased the group’s cash balance to $41.9 million in first half of 2015, as compared to $286.3 million in the corresponding period of prior year. 


Cash Flow as of first half of 2015 (Source: Company Reports)

Conclusion

The shares of REA group posted a negative year to date returns of 11.02%. Moreover, the shares have plunged over 13.8% over the last three months partly attributed to the lower than expected earnings, amid other reasons. Despite investor’s huge expectations, the group could deliver a year over year growth of 21% in revenues, which we believe to be a decent performance. We take the recent decline in the stock to be a buying opportunity as the group has a lot of potential, given the firm’s solid position in Australia as well as the growing penetration in Europe and Asia.


REA Group Daily Chart (Source - Thomson Reuters)

Based on the foregoing, we give a “BUY” recommendation to REA group at the current price of  $39.19

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2014 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.