REA Group Ltd
REA Details
REA Group Ltd (ASX: REA) is the multinational digital advertising business which specialises in the property.
Results Performance (Half-year Ended 31st December 2021)
- The company’s financial highlights from the core operations consist YoY growth in revenue of 37% to $590 Mn, a rise in EBITDA including associates of 27% to $368 Mn as well as the 31% growth in net profit to $226 Mn.
- The company’s results include the consolidation of REA India from 1st January 2021 and Mortgage Choice from 1st July 2021. However, excluding the impact of the acquisitions, core revenue rose 25%, EBITDA including associates rose 27% and NPAT increased 33%.
- Notably, the revenue growth was supported by the increases in all major lines of business, including the 31% growth in Australian Residential.
- The Board declared interim dividend of 75.0 cps fully franked, which implies the 27% growth on the previous year.
Source: Analysis by Kalkine Group
Recent Update
REA announced its results for the 9 months ended 31st March 2022 as reported by News Corporation. The group financial highlights from the core operations for 9 months ended 31st March 2022 include revenue of $869 Mn and EBITDA including associates of $523 Mn.
The Australian residential property market witnessed the post-COVID recovery during Q3. The company mentioned that national listings rose 11% YoY, with Sydney up 14% as well as Melbourne up 8%.
Outlook
The fundamentals of the residential property market are positive and there is a robust balance between supply of properties and demand from buyers. Even though further interest rate increases are anticipated, robust bank liquidity, record low unemployment as well as increased immigration could support the Australian property market.
Key Risks
Notably, financial services settlements growth could witness a slowdown in the fourth quarter as the company cycles exceptionally robust previous year comparables.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (illustrative)
Technical Overview:
Chart:
Source: REFINITIV
Note: Purple Color Line Reflects RSI (14-Period)
Stock Recommendation
The stock has been valued using a P/E multiple based relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average P/E multiple (NTM) (Peer Average) considering the fundamentals of the residential property market.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Considering the facts above, we give a “Buy” recommendation on the stock at the closing market price of A$110.040 per share, down by 3.592% on 24th May 2022.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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