This report is an updated version of the report published on 6^th May 2022 at 3:11 PM (GMT +10)

REA Group Ltd

REA Details

REA Group Ltd (ASX: REA) is the multinational digital advertising business which specialises in property. It operates Australia’s leading residential as well as commercial property websites – realestate.com.au and realcommercial.com.au – and the leading website dedicated to share property, Flatmates.com.au and property research website, property.com.au.

Results Performance (Half-year Ended 31 December 2021)

• REA has posted revenue amounting to $590 Mn, reflecting a rise of 37% as well as 25% (excluding acquisitions). It has posted EBITDA amounting to $368 Mn, implying 27% rise.
• It witnessed robust growth in residential revenue due to the listings, depth, price rise as well as add-ons.
• It has posted operating cash flow of $213 Mn and free cash flow stood at $169 Mn.
• As at 31^st December, its total drawn debt stood at $414 Mn and it had $186 Mn of the new facility undrawn.

Source: Analysis by Kalkine Group

Recent Update

REA announced the results for the 9 months ended 31^st March 2022 as reported by News Corporation (ASX: NWS). The News Corp report consists US GAAP financial information for REA as well as its subsidiaries for 9 months ended 31^st March 2022.

REA’s financial highlights from the core operations for 9 months ended 31^st March 2022 consist revenue of $869 Mn and EBITDA including associates of $523 Mn.

The Australian residential property market witnessed the post-covid recovery during Q3. The national listings rose 11% YoY.

Key Risks

The company’s business is exposed to the risks related to the COVID-19 lockdowns. Also, financial services settlements growth could slow in the Q4 FY 2022.

Outlook

As anticipated, April national residential listings fell by 8% YoY and Sydney listings declined 19% and Melbourne 18%. Also, national listings could be down YoY in Q4 FY 2022, implying robust prior period listings as well as potential impacts from the federal election.

However, the fundamentals of the residential property market are positive, with a healthy balance between supply of properties as well as demand from buyers.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

While the further interest rate increases are expected, robust bank liquidity, record low unemployment as well as higher immigration could underpin the Australian property market.

The stock has been valued using Price/EPS multiple based relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). In addition, a slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average) (approx) considering the fundamentals of 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 aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $111.885 per share (Time: 10:45 AM Sydney, Australia (GMT +10)) on 6^th 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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