Rea Group Ltd

 
Robust Financials: Rea Group Ltd (ASX: REA) has via the latest press release stated that Mr. Owen Wilson had commenced his new role as the CEO of the company from the 7th of January 2019. In consonance, the company has notified that Mr.  Wilson held 12,629 Ordinary Shares, and performance rights in the various lots in a total of 16,517 rights.
 
The company had posted robust numbers for the September quarter. The revenues rose by 17% over PCP & came in at $221.90 Mn. This growth was due to the ongoing traction seen in the Australian Residential business as well as the revised prices which came into effect from 1 July 2018. Moreover, there was a full quarter contribution to the revenues from the Smartline Business. The underlying EBITDA was clocked at $130.90 Mn, witnessing a growth of 23% on PCP. This was due to the robust growth achieved in the developer as well as commercial businesses. Moreover, there was also an introduction of a better product mix along with deeper penetration in the commercial business. The firm expects that the revenue growth will exceed the operating cost growth for the full year FY 2019, and this will lead to margin expansion going forward. Moreover, the Hometrack business which was bought in June 2018, is expected to perform as per the expectations and hence the company has provided revenue guidance in the range of $14-16 Mn for FY19.



 
REA’s FY 2018 Financial Snapshot (Source: Company Reports)
 
On the financial metric front, the company has better growth when considering its EBITDA margins of 59.10% vis-a-vis the industry median of 42.60%. Hence, on that basis, it can be said that it’s a growth stock. Also, the company has deleveraged its balance sheet, as the Net Debt-to-EBITDA ratio has fallen over the year to 0.47x. In the meantime, the stock price has fallen 15.24% over the past six months as on 16 January 2019 and is trading at lower level. Hence considering robust EBITDA Margins & traction in Hometrack Business, we maintain our Hold” recommendation on the stock at the current market price of $76.70.
 

Carsales.com Limited

 
Strong Return Ratios: Carsales.com Ltd (ASX: CAR) revenues for the FY 2018 grew by 19% on a YoY basis & came in at $444 Mn. This growth was driven by the stupendous rise which was witnessed in the core classifieds business supported by the major adjacencies such as the tyre sales, Stratton finance & the Redbook inspect. The underlying EBITDA was clocked at $204.60 Mn, witnessing a growth of 16% on a YoY basis. This depicts the company’s expanding core business margins as the company remained successful in leveraging its operating costs. In the case of finance & related services, growth was driven by the volume expansion witnessed in its low margin financial products.
The firm anticipates its revenue, EBITDA and NPAT growth to remain robust for the domestic core business. We believe that the company will be performing well in the domestic adjacent businesses & also the premium listing business will grow in the forthcoming fiscal.


 
CAR’s FY 2018 Financial Snapshot (Company Reports)
 
On the financial metric front, the company has better growth when considering its Pre-tax margins of 55% vis-a-vis the industry median of 41.90%. Hence, on that basis, it can be said that it’s a growth stock. Also, the company has delivered ROE of 61.5% which is almost double the Industry median of 31.10%, hence the company has been providing very lucrative returns to its shareholders. Meanwhile, the stock price has fallen 21.24% over the past six months as on 16 January 2019. Hence considering the stupendous ROE delivered to the equity shareholders and the expectation of robust operational performance in the core business due to increased penetration of premium listing products in years to come, we maintain our “Buy” recommendation on the stock at the current market price of $11.77 (up 1.117% on January 17, 2019).
 

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