REA Group Ltd

REA Details

Exposure to High Growth Regions: REA Group Ltd (ASX: REA) is engaged in managing websites and mobile applications related to property and property-related services. The company has delivered new product launches in Asia despite challenging situations. The company has registered higher penetration on its iProperty PRO platform in Malaysia, with a site visit growth of 35% YoY. The company has also delivered flexible subscription packages resulting in growth in customer’s renewal in Hong Kong. The company has also invested in Indian markets through its subsidiary Elara Technologies and expecting strong growth post-Covid-19.     

Financial Highlights for 1HFY21: REA has registered a modest decline in its revenues to $430.4mn in 1HFY21 as compared with $440.3mn in 1HFY20. The company was able to register a 9% increase in its EBITDA to $290.2mn in 1HFY21 on the back of controlled operating expenses. Moreover, the NPAT has seen a growth of 13% to $172.1mn in 1HFY21 as compared with $152.9mn in 1HFY20. The company declared an interim dividend of 59 cents per share in 1HFY21, depicting an increase of 7% year over year. 

EBITDA Growth (Source: Company Reports)

Outlook: The company has a strong balance sheet with low debt levels of $0.24mn as at 31 December 2020 and a cash balance of $179.9mn as at 31 December 2020. This provides a liquidity cushion to the company for meeting its working capital requirements going forward. 

Valuation Methodology: P/E based Relative Valuation Method (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: In the last one month, REA has decreased by 13.54% and by 8.14% in the last three months. The current market capitalisation of REA stands at ~$18.10bn as of 17 March 2021. The stock is currently trading above the average 52-week price level range of $62.050-$163.750. On the technical analysis front, the stock has a support level of ~$132.71 and a resistance of ~$139.575. We have valued the stock using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering its decent liquidity postion, its presence in the high growth regions, and increasing interest in Elara Technologies for the objective of business growth. For this purpose, we have taken peers Enero Group Ltd (ASX: EGG), MNF Group Ltd (ASX: MNF), Macquarie Telecom Group Ltd (ASX: MAQ), to name a few. Considering an increase in EBITDA and net profits, increase in the interim dividend, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the closing price of $135.22, down by 1.321% as of 17 March 2021.

REA Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Rent.com.au Limited

RNT Details

Increasing Customer Engagement: Rent.com.au Limited (ASX: RNT) is engaged in managing websites for the rental real estate market. One of the renowned websites in which the company operates in Australia is www.rent.com.au. The company has registered a higher customer engagement by posting an increase in “Unique Visitors” by 10% YoY in 1HFY21. Moreover, the company has posted an increase in “Products Used” by 62% YoY in the same period. Furthermore, there is an increase in “Enquiries & Applications” by 26% YoY in 1HFY21, an increase in “Non-Paid Visitors” by 23% YoY in 1HFY21. In addition, the company has posted an increase in “New app downloads” by 23% YoY in 1HFY21 and an increase in “Advice Pageviews” by 22% YoY during the same period.

Financial Highlights for 1HFY21: RNT has posted an increase in revenues from $1.48mn in 1HFY21 to $1.19mn in 1HFY20, on the back of a 43% YoY increase in the renter product sales. The company is improving on its EBITDA losses by keeping its marketing spend and labour cost under check.

Revenue and EBITDA Growth (Source: Company Reports)

Outlook: RNT is expecting Core Rent search business profitable again in Q3FY21 after the business is profitable in 1HFY21. The company is expecting to launch RentPay soon to boost their revenues going forward. 

Valuation Methodology: EV/Sales based Relative Valuation Method (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: In the last one month, RNT has decreased by 25.80% and increased by 400% in the last three months. The current market capitalisation of RNT stands at ~$103.39mn as on 17 March 2021. The stock is currently trading slightly above the average 52-weeks’ price level range of $0.025-$0.395. On the technical analysis front, the stock has a support level of ~$0.214 and a resistance of ~$0.258. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low double-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering a higher working capital required for marketing and product development and negative return on equity for the investors. For this purpose, we have taken peers REA Group Ltd (ASX: REA), Domain Holdings Australia Ltd (ASX: DHG), RMA Global Ltd (ASX: RMY). Considering the higher working capital required for marketing and product development, valuation, and current trading levels, we are of the view that most of the positive factors have been discounted at the current juncture. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the current market price of $0.230, down by 11.539% as on 17 March 2021.

RNT Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Engage:BDR Limited

EN1 Details

Adding-Up Users with New Partnership: Engage:BDR Limited (ASX: EN1) is engaged in digital media and advertising, managing, purchasing and selling of advertising inventory through its online marketplace. The company has recently announced on 12 March 2021 about signing a partnership with Acceptable Ads Exchange (AAX). The partnership will aid EN1 to advertise to those users who are using Adblock Plus and utilising it for blocking ads through the Adblock plus solution. This procedure is expected to be live from the next week after the date of announcement and will start generating recurring revenues by billing the advertisers every month.  

Financial Highlights for FY20: EN1 has reported an EBITDA operating loss of $1.39mn during FY20. The company has witnessed a finance cost of $2mn, depreciation and amortisation cost of $861k, impairment cost of $856k, and share based payment expenses of $1.7mn. The company has improved on its balance sheet by registering an increase in net assets to $8.7mn as at FY20 from $3.9mn as at FY19. Total liabilities reduced to $6.2mn as at FY20 from $13mn as at FY19 with reduction in borrowings to $2.3mn as at FY20 from $6.8mn as at FY19.

Cash and Cash Equivalents (Source: Company Reports)

Key Risks: As per the company reports, EN1 is signing new agreements with various companies to expand its users base, non-renewal of any agreement may result in decline in business growth and impact the financials severely. The company utilises technology for its business activities, any technical failure may impact the business severely and lead to extended losses. 

Outlook: EN1 is signing new partnership with various companies in media and entertainment segment. After the announcement of signing partnership with AAX, EN1 has now signed a CTV/OTT partnership with Newsy. EN1 is expecting to generate revenues through this partnership by mid-April. With partnership with Newsy, EN1 will be focusing on CTV/OTT in 2021.

Stock Recommendation: In the last one month, EN1 has decreased by 9.90% and by 16.66% in the last six months. The current market capitalisation of EN1 stands at ~$12.24mn as of 17 March 2021. The stock is currently trading below the average 52-week price level range of $0.004-$0.019. On the technical analysis front, the stock has a support level of ~$0.0041 and resistance of ~$0.0078. On a TTM basis, the stock of EN1 is trading at an EV/Sales multiple of 0.8x lower than the industry average (Software and IT Services) of 80.9x. Considering the fact that the company is signing new partnerships to boost revenues, expanding reach to new users, positive outlook, valuation, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of $0.005, as of 17 March 2021.

EN1 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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