REA Group Limited
REA Business Details
REA Group Limited (ASX: REA) is a leading global digital advertising business, specializing in property with more than 2,800 people working across three continents. REA Group runs Australia’s leading residential and commercial property websites namely, realestate.com.au and realcommercial.com.au.
H1FY22 Result Performance (For the Period Ended 31 December 2021)
- The group has recorded 37% growth in operating income from core operations to $590.4 million in H1 FY 2022, up by 37% YoY. It includes the consolidation of the REA India from 1 January 2021 and Mortgage Choice from 1 July 2021. However, excluding the effect of acquisitions, core revenue grew by 25%.
- Core operating costs, excluding acquisitions increased by 17% during the period, which reflects reduced operating costs in the prior period.
- Robust growth in add-ons like Audience Maximiser also contributed to the rise in variable costs related to these products.
- Resultantly, EBITDA from core operations of the group increased by 27% to $368.0 million and net profit from core operations attributable to owners of the parent improved by 31% to $225.8 million.
- The Board declared an interim dividend of 75.0 cents per share fully franked that showed an increase of 27%.
Source: Company Reports, Analysis by Kalkine Group
Key Risks
REA operates in a highly competitive market. Its business model could be impacted by the development of new technologies and higher competition from existing or new sites and apps. Further, its group business activities, particularly the real estate listings and financial services, are extremely reliant on the exposure to macroeconomic, regulatory, legal, and geopolitical conditions across its operating markets viz, Australia, India, and Asia.
Outlook
The group generated positive operating cashflows and traded profitably for the half-year period ended 31 December 2021. The directors expect this to continue for the near future. The Group strengthened its liquidity position by entering a new syndicated facility, replacing the previous facility. Further, the company highlighted that residential property market conditions remain positive, with high levels of buyer enquiry reinforced by improved supply.
Notably, the company forecasts the operating cost growth excluding acquisitions to slow to high-single digit growth in H2FY22 due to a more normalised prior period comparative and continued investment in growth initiatives. FY22 operating cost growth is expected to be of low-double digits, against its earlier expectations of high single digits growth, reflecting an increase in revenue-related variable costs.
Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)
Technical Overview:
Daily Price Chart
Source: REFINITIV, Note: Purple Color Line Reflects RSI (14-Period)
Stock Recommendation
The stock has been valued using a Price/EPS multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average) considering decent results for H1FY22, its growth strategies as well as pivotal investments to drive growth. As at 31st December, REA’s total drawn debt stood at $414 Mn and $186 Mn of the new facility was undrawn. It is also possessing robust operating cash flows.
Considering the aforementioned factors along with decent outlook, we give a “Buy” recommendation on the stock at the closing market price of A$127.890 per share, down 3.814% on 7th March 2022.
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.
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:-
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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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