Rea Group Ltd

Robust EBITDA Margins & constant traction in audience base:Rea Group Ltd (ASX: REA) has via latest press release stated that Mr. Owen Wilson would replace Ms. Tracey Fellows as CEO. Ms. Fellows is stepping down from her role as CEO in January 2019 to become President of the Global Digital Real Estate, News Corp. Mr. Wilson will commence his new role on & from 7 January 2019. As part of this leadership transition, Mr. Henry Ruiz’s role as CEO of REA Group Asia will expand to be REA Group CEO, Asia, and Chief Strategy Officer.

The company had posted robust numbers for the September quarter. The revenues grew by 17% over PCP & came in at $221.90 Mn. This growth was due to the ongoing traction seen in the Australian Residential business. 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. This performance was partially offset by the volume decline witnessed in the new apartment construction projects. 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 forth.

 

 
REA’s leading brands (Source: Company Reports)
 
On the financial parameters front, the company has better growth when considering its EBITDA margins of 59.10% vis-a-vis the industry median of 39.20%. Hence, on that basis, it can be said that it’s a growth stock. Also, the company has deleveraged its balance sheet, as the Debt-to-Equity ratio has fallen over the year to 0.46x. Meanwhile, the stock price has fallen 21.07% over the past six months as on 20 December 2018. Hence considering outperformance on the EBITDA margins front & the traction witnessed in the audience base, we maintain our “Hold” recommendation on the stock at the current market price of $70.14 (down 2.556% on 21 December 2018).
 

Carsales.Com Limited

 
Tight credit markets and ASIC legislations- An overhang for the stock at present:Carsales.com Ltd (ASX: CAR) has via latest press release stated that it expects to report a non-cash impairment charge against the carrying value of its 50.1% investment in Stratton of approximately A$48 Mn. In the financial report for the FY 2018, the company had identified that certain external factors had the potential to adversely impact the valuation of the Stratton Finance CGU, including ASIC legislative changes on car financing and Interest rate hikes. The firm anticipates its share of net profit from Stratton will be circa $1.0 Mn in FY19 vis-à-vis $2.0 Mn in FY18.
 
For FY 2018, the company’s revenues grew by 19% on a YoY basis & came in at $444 Mn. This growth was driven by the stupendous rise seen 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. This growth was driven by the volume expansion witnessed in its low margin products.

The firm expects that the 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 business & also the premium listing business will grow in the forthcoming fiscal.However, the financial services vertical will remain subdued due to the tight legislations and credit markets.

 
CAR’s Financial Performance (Company Reports)
 
On the financial parameter front, the company is trading at an EV/Revenue multiple of 6.60x vis-a-vis the industry median of 3.9x. Hence, on that basis, it can be said that the company is trading at premium levels. Meanwhile, the stock price has fallen 30.95% over the past six months as on 21 December 2018. Hence considering the premium valuations & the overhang existing due to the regulations, we advise a wait and watch strategy on the stock at the current market price of $10.73.
 

iCar Asia Limited

Robust growth witnessed in audience & listings: iCar Asia Ltd (ASX: ICQ) has via the release declared its numbers for the 3Q 2018 ended 30 September 2018. The company has achieved a revenue of $3 Mn, a growth of 51% Y-o-Y. This was achieved on the back of continued strong growth in core businesses in Used and New Car. For New Car, retimed events and media campaigns were successfully executed in Q3. Cash receipts from customers have grown 46% to reach at $3.2 Mn, also the firm’s Malaysia operations became cash flow & EBITDA positive for the first time.

Going forth, the company’s Thailand operations are seen to be on track to achieve the break-even in Q4 2018. This can be estimated since the listings & the audience are growing at a robust rate. Moreover, the digital transformation is gaining traction across all the Asian markets.


ICQ’s Thailand operational metrics (Source: Company Reports)
 
Meanwhile, the stock price has fallen 50.0 % over the past six months, thus posing a buying opportunity for the investors. Considering the growing consumer discretionary spending with its phenomenal growth in the audience base, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $0.115.
 

Domain Holdings Australia Limited

 
Degrowth in listings & sluggishness in Auction volumes- A concern: Domains holdings Australia Ltd (ASX: DHG) has via its release provided the trading update till 12th October 2018, i.e., for the first fifteen weeks of the FY 2019.

The company’s total revenues came in 1% lower in comparison with the PCP. This revenue degrowth was seen on account of the lower new listings and auction volumes, particularly in the regions of Sydney and Melbourne. The Sydney market new listings were down 8%, and auction volumes were down 22%. At the same time, Melbourne market new listings were down 1%, and auction volumes were down 18%. Also, the company’s media revenue got impacted for the period due to the restructuring of the digital media sales to generate a higher margin offering.

The firm expects to deliver the cost performance in the upcoming quarters for which the firm is taking adequate cost initiatives. The result of which shall be the lower single digits rise in the underlying costs.  

 
DHG’s Financial Performance for FY 2018. (Company Reports)
 
On the financial parameter front, the company is trading at an EV/sales multiple of 4.20x vis-a-vis the industry median of 3.9x. Hence, on that basis, it can be said that the company is trading at a premium level. Meanwhile, the stock price has fallen 33.13% over the past six months as on 21 December 2018. Hence considering the premium valuations & the degrowth seen in the new listings & auction volumes, we advise a wait and watch strategy on the stock at the current market price of $2.18 (down 1.802% on 21 December 2018).
 

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.