Company Overview: RMA Global Limited (ASX: RMY) is an online digital marketing business and provides data on residential property sale results for residential real estate agents. It also provides reviews of agent performance from vendors, as well as buyers of residential real estate. The data can be used by the agents to include it in their profile and market themselves, or by vendors to get a comparative picture of several agencies. The company also offers rating of agencies on leased properties. RMY has a presence in Australia, New Zealand and the USA.
RMY Details
Rise in Subscriptions & Agents to Aid Revenue: RMA Global Limited (ASX: RMY) is engaged in the operation of an online marketing platform for real estate agents. The market capitalisation of the company as on 23 April 2021, stood at ~$122.23 million. The company has expanded its product offering and the likes of Facebook and Instagram campaigns have been added to it. It has also developed the product to include highly personalised ads for agents, thus increasing its content and advertising offerings.
The company believes that it has onboarded a substantial number of agents on its platform in the Australian market, and plans to monetise them going forward.
During H1FY21, the company reported resilient financial performance in a difficult period of operations due to the impact of the COVID-19 pandemic on the general economy. The total recurring revenue increased by ~37% to $4,755k in H1FY21, compared to $3,467k in H1FY20. The total agent subscription revenue grew by ~19% to $3,514k in H1FY21. There was also a significant improvement in the total promoter revenue by ~124% to $1,159k, from $518k in the previous corresponding period. The net loss narrowed down to $4,167k during the period. RMY ended the period with a decent cash position of $13.85 million as of 31 December 2020.
H1FY21 Financial Performance (Source: Company Reports)
Decent Player in the ANZ Region: The company considers itself to be a leading player in this space, with 91% of the top 20% of agents in the Australian market happen to have claimed RMA profiles. It reported that 81% of residential properties sold in H1FY21, were through agents with a company-claimed profile. As per RMY, 55% of the top 20% of agents are subscribers to its platform. It has around 38,400 claimed profiles and over 942,500 verified reviews as of December 2020.
Market Performance in Australia (Source: Company Reports)
Rise in Subscriptions and Promoter Revenue: RMY reported an uptick in subscription and promoter revenue in Australia during H1FY21. It has also reported an uptick in the mortgage broker revenue during the period and has been experiencing high traction from this segment. It has been looking to establish its position in the New Zealand market and reported growth in claimed agents to ~3,400 with 21,600 reviews. It has witnessed a decent uptick in annual subscriptions across several major agencies and reported a strong pipeline for ongoing subscriptions.
NZ- Profile Claims Vs Reviews (Cumulative) Trend (Source: Company Reports)
Growth in Number of Agents in the US Market: The company has surpassed a major milestone in the US market with over 100,000 agents on the platform as of 21 January 2021. The agent profile claims and reviews grew by 158% and 292% Y-o-Y, respectively, in H1FY21. The growth in agents can be attributed to the increased awareness of RateMyAgent, and also owing to a new onboarding process.
Top 10 Shareholders: The top 10 shareholders together form around 72.83% of the total shareholding, while the top 4 constitute the maximum holding. Williams (David) and Armstrong (Mark) are holding a maximum stake in the company at 27.86% and 11.77%, respectively, as also highlighted in the chart below:
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
Key Metrics: The company has reported an impressive gross margin during H1FY21 at 84.8%. The current ratio stood at 4.24x in H1FY21, compared to an industry median of 1.41x. There was also an improvement in the debt-to-equity ratio of the company to 0.04x in H1FY21, from a level of 0.22x in H2FY20. The cash cycle stood at negative 261.7 days during the period. RMY also witnessed an uptick in the fixed asset turnover ratio to 8.12x in H1FY21, compared to 6.58x in H1FY20. The total debt including capital lease obligations was at $0.41 million, as of 31 December 2020.
Growth and Liquidity Profile (Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
Key Risks: The main risks that arise as a result of the company’s operations include market risk, credit and liquidity risk. It is prone to interest rate risk arising from its cash reserves, which generally have floating rates of interest. The company operates in the real estate space where there is a direct correlation between the property sales volumes and the number of active agents in the market. In the event of any disruption or macro-economic issues like the present COVID-19 situation, there may be a reduction in the volume of property sales. This may lead to a decrease in the number of active agents, which is the bread and butter of the company. Moreover, a slowdown in the industry might lead to agents decreasing their subscriptions on the platform.
Outlook: The company will look to continue to increase its revenue from agents, by improving and diversifying its product line. It also plans to integrate with platforms like Domian.com.au and Google My Business in order to facilitate a flow-through of reviews from the company’s platform. It further plans for growth through the enhancement of subscription products and increased focus on mortgage broking. In the US market, the company has witnessed significant growth and expects to continue it into FY21.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Data Source: Refinitiv, Thomson Reuters, 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: The company expects the new staff and products to give revenue comfort from H2FY21 onwards. The stock of RMY is trading below its average 52-weeks’ levels of $0.215-$0.385. The stock of RMY gave a positive return of ~4% in the past one year and a negative return of ~11.86% in the past three months. On a technical analysis front, the stock of RMY has a support level of ~$0.230 and a resistance level of ~$0.330. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer median EV/Sales (NTM trading multiple), considering the impressive growth in agents in the US market, growth in subscription revenue and expected increased real estate activity in the industry. For the purpose, we have taken peers such as REA Group Limited (ASX: REA), Hipages Group Holdings Limited (ASX: HPG), Seek Limited (ASX: SEK), to name a few, which comes under Internet Publishing and Broadcasting and Web Search Portals Space. Considering the expected upside in valuation and current trading levels, resilient performance in a difficult phase of operations, impressive growth in agents in the US market and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.260, up by ~1.960% as on April 23, 2021.
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RMY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Note: 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.
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