REA Group Limited

REA Details

Combining Operations of Malaysia and Thailand Businesses: REA Group Limited (ASX: REA) is involved in advertising property and property-related services on websites and mobile applications in Europe, Australia, and Asia. It operates commercial, residential, share, and co-working property sites. As of 31 May 2021, the market capitalisation of REA stood at ~$21.73 billion. On 31 May 2021, REA announced that it has entered a binding contract with PropertyGuru Pte. Limited (“PropertyGuru”) to transfer the ownership of Thailand and Malaysia’s businesses. In exchange, it will receive 18% equity interest in PropertyGuru and one seat on the company’s Board.  REA will complete the sale transaction in July 2021, subject to the divestment of REA’s interest (27%) in 99 Group. REA anticipates gaining ~$10 million from the divestment. The Malaysian and Thailand businesses are expected to add revenue of ~$15 million to the Group and reduce EBITDA by ~$11 million in FY21.

FIRB Clearance for the Proposed Acquisition: REA announced that it has received approval from the FIRB (the Foreign Investment Review Board) for the proposed acquisition of Mortgage Choice Limited (ASX: MOC). MOC is proposed to be acquired by REA Financial Services Holding Co. Pty Limited., a wholly-owned subsidiary of REA, under a scheme of arrangement (Scheme). The Scheme will be subject to several pending conditions, such as approval of the MOC shareholders in the required majorities. REA will seek consent at the Scheme meeting slated to be held on 10 June 2021 and later approved by the Supreme Court of New South Wales (NSW).

Key Takeaways for March Quarter (Q3FY21): The Group reported $225.6 million revenue, up by 8% YoY (excluding acquisitions) in Q3FY21. Its EBITDA increased by 13% YoY, driven by the better performance of Move, Inc, and the Australian Residential business. During the quarter, REA Group declared its proposal to acquire 100% of the shares in MOC subject to the necessary and shareholder approvals. With Q3FY21 results, the Group YTD21 revenue stands at $655.9 million (Up 1% YoY) and EBITDA at $415.1 million (6% YoY excluding associates’ share) nine months ending 31 March 2021.

Revenue & Net Income from FY2016-FY2020; (Source: Analysis by Kalkine Group)

Key Risks: The company faces volatile market conditions, impact on yield, a decline in rental listings due to the COVID-19 pandemic. It is also exposed to the interest rate risk on its borrowings and loans and foreign exchange changes given operations in multiple countries.  

Outlook: The Scheme for MOC acquisition is expected to be implemented by 1 July 2021. The Group will continue to exercise cost control and targets positive operating jaws for the entire year (without acquisitions). It expects core operating costs for FY21 (excl. acquisitions) to be mostly in sync with FY20. It expects operating cost growth in 2HFY21 to increase. REA expects the developer revenues to be supported by growth in new developments in FY21. It also predicts the commercial revenues to remain challenged and listings pressure to exist in 2HFY21. Its Asian payments are likely to be negatively impacted for the rest of FY21 due to COVID-19 restrictions in Malaysia.

Valuation Methodology: Price/Earnings Based Relative Valuation Method (Illustrative)

Source: 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: The stock of REA gave a positive return of 17.13% in the past three months and a positive return of 12.37% in the past six months. The stock is currently trading towards its 52-weeks’ high level of $166.420. The stock of REA has a resistance level of ~$166.82 and support level of ~$159.79. We have valued the stock using the price to earnings based illustrative relative valuation method and have arrived at a target price of single-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer median, considering its higher operating costs for Q3FY21, reduction in revenues from financial services, and media, data and others, and increase expected in the core operating costs in FY21. For this purpose, we have taken peers like Seek Limited (ASX: SEK), Carsales.Com Limited (ASX: CAR), Domain Holdings Australia Limited (ASX: DHG). Considering Q3FY21 results (increase in top-line and EBITDA), increase in YTD21 EBITDA, recovery in the residential property market in Australia, and increase in national listings for Q3FY21, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $163.660, down by 0.499% on 31 May 2021.

REA Daily Technical Chart, Data Source: REFINITIV  

Pushpay Holdings Limited

PPH Details

Issue of RSUs & Notice of AGM: Pushpay Holdings Limited (ASX: PPH) offers a donor management system to non-profit companies, the faith sector, and education providers in the US, Canada, New Zealand, and Australia. As of 31 May 2021, the market capitalisation of PPH stood at ~$1.74 billion. On 31 May 2021, PPH announced the issue of 349,891 restricted share units (RSUs) and the forfeiture of 83,793 RSUs. It now holds 4.736 million RSUs outstanding as per the RSU scheme. On 18 May 2021, PPH informed the investors of its decision to have an online Annual Shareholders’ Meeting on 16 June 2020 at 2 PM (NZT).

Director Retirement: On 12 May 2021, PPH announced the retirement of Bruce Gordon, one of the Directors of PPH.

Key Takeaways from FY21 Results: The company posted an increase in total revenue by 39% YoY to US$181.1 million in FY21. PPH delivered on the EBITDAF guidance of US$58.9 million (up 133% YoY) for FY21. Its NPAT stood at US$31.2 million, up by 95% YoY. A key metric such as average revenue per customer (ARPC) increased by 12% YoY in FY21. The total processing volume registered an increase of 39% YoY to US$6.9 billion in FY21. PPH held a cash and cash equivalents balance of US$4.8 million as of 31 March 2021.

Net Income Trend (Source: Analysis by Kalkine Group)

Key Risks: The company faces foreign exchange fluctuations against the USD, given its considerable use in New Zealand. It is exposed to COVID-19 led disruptions, church closures, delay in new offerings, and technological advancements in the industry.  

Outlook: The company expects to grow in sync with the US GDP growth forecasted at 5-7%. It expects growth in 2HFY21 as vaccinations in the US will encourage reopening the economy. PPH anticipates an increased customer base and usage of its donor management system. The company expects Giving solution customers to grow slightly more than the church market in total. It expects growth in digital adoption by its customers, although at a slower rate than the COVID-19 led acceleration.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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: The stock of PPH gave a positive return of 3.02% in the past three months and a positive return of 5.86% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $1.405-$2.273. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium than its peer average, considering its higher revenue, NPAT, and total transaction processing volume for FY21. For this purpose, we have taken peers like Hansen Technologies Limited (ASX: HSN), Challenger Limited (ASX: CGF), Link Administration Holdings Limited (ASX: LNK) and others. Considering the current trading levels, increase in revenue, higher net operating cash flows, valuation, growth in the customer base of the Donor management system, and PPH’s growth expected in line with the increase in the US GDP, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.605, up by 1.582% on 31 May 2021.

PPH Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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