Investors hailed with the release of REA Group Limited’s (ASX: REA) full year result for period ended 30 June 2018. The core operations performance was stupendous with revenue growth of 20% on the prior year to $807.7 million while reported net profit of $253.1 million was up 23%. EBITDA growth of 22% to $463.7 million was the other highlight. Primarily, the group’s double digit growth in key financial metrics led the stock rise by 3.6% on August 10, 2018.

While the group benefitted from 21% growth in the Australian business that helped drive the revenue performance, the profit reflected one-off transactions. REA witnessed healthy performance for the Residential segment while Financial Services’ inclusion also supported the revenue despite the issues faced for new development project commencements. Financial Services’ delivered revenue of $29.3 million and EBITDA of $10.8 million.
Though there was weakness in total residential listings, Melbourne and Sydney scenario was slightly moderate. It is worth a mention that listings in these markets were better in 1H 2018, however, Sydney witnessed some decline in the second half of the year. At domestic front, realestate.com.au has remained the #1 place for property with 2.6 times the monthly visits of nearest competitor. Its new suite of Agent Edge products grabbed traction in terms of connecting customers with potential sellers as well as offering onsite branding.


Financial Operating Result (Source: Company Reports)

Given the performance, REA enhanced the total dividend (of 109.0 cents per share for 2018) by 20% over FY17. The final dividend has been 62.0 cents per share fully franked. However, group’s operating expenditure also grew in double digits (i.e., 18%) owing to the inclusion of Financial Services’ expenses, higher costs for marketing and product innovation.

On the other hand, the newly acquired Hometrack Australia company is said to contribute a revenue ranging from $14 million to $16 million and EBITDA between $6 million to $7 million in FY19 while the costs would also be up in terms of expenses related to integration and the like. The Australian Residential business is expected to find support from higher prices while listings may be impacted by Victorian election in November as well as the NSW election in March and timing of expenses also may play a role in terms of future revenue growth. Further, Asia business conditions still look a bit challenging.

With a close watch on the stock that trades at a P/E of 234.5x, we maintain our “Hold” recommendation on the stock at the current market price of $ 85.300, which otherwise saw a slump in last one month by a figure of 7.8%.

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