Domain Holdings Australia Limited (ASX: DHG)

With the news of resignation of Antony Catalano as Chief Executive Officer owing to issues at personal front after having worked with Fairfax and Domain for about 26 years, Domain Holdings’ stock was seen to plunge by 17.2% on January 22, 2018 as investors have become sceptical about the future performance of the group. During the interim period, Nick Falloon will act as Executive Chairman. Meanwhile, DHG’s experienced senior leadership team will ensure the continuity in the implementation of Domain’s strategy. Lately, FIL Limited became the substantial holder of DHG by holding 31,705,312 securities with 5.52% of the voting power.

Along with the above news, Domain expressed that it will report its FY18 first-half financial results on 19 February 2018 and based on its preliminary unaudited results, DHG is expected to report a digital revenue growth of 22% against the same period last year and the total revenue growth of 13% is expected. This has been consistent with the most recent trading update which was provided to the market on 22, September 2017. 

DHG also came out with a Trading Policy to avoid Insider Trading and it included the policies for assisting people to avoid for being accused of insider trading and to protect it against any potential allegations which its Directors or senior officers might engage in. DHG takes steps with this policy seriously and any breach of the policy by any employee may result in termination. DHG is now planning to expand its presence outside of its core NSW/VIC markets and as it comes from a weaker position in the newer markets so therefore it carries a risk related to monetising of listing in these areas.
 

Revenue Comparison of REA vs. DHG (Source: Company Reports)
 
Its Online property advertising is still relatively small in relation to the sizes of the property market and its FY18 costs are also expected to increase by 13% while there is an upside anticipated for revenue. DHG estimates its annual value of commissions paid to its residential agents to be high. DHG generated revenue of A$49mn from media, commercial and from developer spaces in FY17 but its revenue in these categories is well below its share of audience, though expected to grow with the recent audience growth. As far as the stock prices are concerned, the share price slipped by 6.7% in the past one month and is still on the downside. Given the scenario, we believe that the stock is “Expensive” at the current market price of $2.75, and is worth a watch on meeting its guidance.

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