Stocks’ Details

REA Group Ltd

Australian residential business, Hometrack Australia business Supported REA in Q1 FY 2019: REA Group Limited (ASX: REA) recently reported its Q1 FY 2019 results which depicted that the company managed to generate revenues (after broker commissions) amounting to $221.9 million which reflects the YoY growth of 17%. This growth was seen because Hometrack Australia business got included as well as because of Australian Residential business. Additionally, the quarter also witnessed the full Smartline business contribution while in the same period of the previous year the contribution was of only 2 months.


Quarterly Earnings Snapshot (Source: Company Reports)

The top management of the company reflected favourable views with respect to the Q1 FY 2019 results as, throughout the company’s platforms, there was a favourable response from the consumers.
In FY 2018, REA Group posted EBITDA margin of 59.1% which implies the rise of 1.9% on the YoY basis.There has been substantial improvement in the company’s operating margin as well. In FY 2017, the company’s operating margin was 23.3% which rose to 48.3% in FY 2018, reflecting the rise of 25% on the YoY basis.

Crucial business Strategies to Support REA Group: As depicted by the annual report of 2018 of REA Group Limited, the company has been focusing towards:
 

• Property advertising
•  
• Lifestyle and Financial services
•  
• Global
•  

With the help of developing and innovating the new products and services, the company seeks to extend help to the real estate agents as well as property developers and it also provides the tools to the consumers. Additionally, the company is expected to get benefit from the Hometrack Australia acquisition. With respect to the global, the company had stated that its operations in Asia as well as its deployment in the Elara Technologies supports the company in terms of its presence which could help it over the long-term.  

Stock Analysis: On the daily chart of REA Group Limited, Moving Average Convergence Divergence or MACD has been applied and default values are considered for the purposes. As per the observation, the MACD line might cross the signal line. Once this crossover occurs, there are expectations that the MACD line might move upwards. Therefore, the stock might encounter bullish momentum. Based on the above analysis and decent performance in Q1FY19, we maintain our “Hold” rating on the stock at the current market price of A$73.200 per share.

 

Challenger Limited

Expansion of Customer Base Supported CGF: The top management of Challenger Limited (ASX: CGF) reflected favourable views for the FY 2018 results as stated the company witnessed favourable momentum and happens to be in the robust position to tap the growth opportunities. The management had also stated that the company’s results were primarily supported by the customer base expansion which was witnessed as it was able to enhance its products and distribution activities.  The company’s performance was also supported by the robust momentum in the assets under management or AUM. This metric rose 16% and ended FY 2018 with $81.1 billion.


CGF’s AUM (Source: Company Reports)

Considering the time span of the previous five years, the company’s AUM encountered strong momentum because of the robust fund flows with regards to Funds management business as well as favourable momentum in the Life sales.

Challenger Limited has managed to maintain its gross margin for FY 2018 higher than the industry median. In FY 2018, the company’s gross margin was 76% while the industry median stood at 67.9%. The company’s net margin in FY 2018 was also higher as compared to the industry median. The industry median of net margin stood at 14.7% while the company’s net margin was 14.8% in FY 2018.  

Distribution Reach to Support CGF Moving Forward: As depicted by the annual general meeting, Challenger Limited happens to be in the robust position and can tap the growth opportunities by working towards the distribution reach as well as with the help of its products. However, the company’s business model is also expected to support the company.  
 
However, the company might also encounter some of the risks like political as well as regulatory changes, unfavourable momentum in the global economy, volatility in the markets as well as demand and competitive scenario.
Stock Analysis: On the daily chart of Challenger Limited, Exponential Moving Average or EMA has been applied and default values have been taken into consideration. After careful observation, it was noticed that the stock price might cross the EMA moving forward. If this crossover occurs, the stock might witness bullish momentum. Taking into consideration the above factors, we maintain our “Buy” rating on the stock at the current market price of A$9.440 per share.
 

Xero Limited

Decent Performance in 1HFY19: New Zealand based public software company, Xero Limited (ASX: XRO) offers cloud-based accounting software services and connects small and medium-sized businesses to their advisors. The company has over 1.38 million subscribers in more than 180 countries that are integrated with more than 700 apps. It serves various businesses such as retail, high tech, non-profit, legal, Amazon sellers, hospitality, cafes, start-ups, construction, creatives, e-commerce, small business, healthcare, farming, manufacturing, tourism, and real estate. Recently, the company posted encouraging numbers in 1HFY19 wherein topline increased by 37% to $256.5 million whilst net loss grew 46% from a loss of $19.59 million in 1HFY18. The operating revenue growth was primarily driven by growth in subscribers while net loss was mainly impacted by the impairment charges and higher finance costs which were incurred during the same period. However, the AMRR growth continued and increased by 40% to $589.1 Mn in 1HFY19 over the prior corresponding period (PCP). The operating cash flow increased from $15.1 million to $36.0 million in 1HFY19 compared to the same corresponding period. As at 30 September 2018, the company had cash and short-term deposit balance of around $76.2 Mn. On the analysis front, the company has posted a negative Net margin of 11.1% as compared to the negative number last corresponding period and the industry average of 18.0%. As a result, RoE and RoCE also recorded a negative number of 10.0% and 5.1% in 1HFY19. On the other hand, the company has added more than $1.146 billion in total subscriber lifetime value in the past year. Currently, the group focuses on delivering continuing growth within its core business and focus on developing products. It will continue developing its people, products, and partnerships.


1HFY19 Financial Highlights (Source: Company Reports)

Meanwhile, the share price has fallen by 14.49% in the past three months (as of December 28, 2018) and trading towards a slightly higher level. From the technical analysis front, Moving Average Convergence Divergence or MACD has been applied on the daily chart of Xero Limited and default values were taken into consideration. After careful observation, it was noticed that the MACD line has crossed the signal line and is witnessing upward momentum. Therefore, the stock might encounter bullish momentum moving forward. On the other hand, the company has made a loss on a half-yearly basis, and over the past years, it has just started to break-even its investments in growth for such a long time and see yielding positive EBITDA Y-O-Y in future. With the acquisition in place and growing revenue numbers we are positive on the stock, hence maintain our “Hold” recommendation on the stock at the current market price of A$41.90 per share.  


Stock Price Comparative Chart (Source: Thomson Reuters)
 
 

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 do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.