REA Group Ltd

REA Details

Decent Q3FY21 Performance: REA Group Ltd (ASX: REA) is engaged in advertising property and property-related services on websites and mobile applications in Australia, Europe, and Asia. The company operates residential, commercial, share and co-working property sites. The company is present in Australia, Europe, North America, Asia and Corporate. On the back of improved performance for the Australian Residential Business and Move, Inc., REA has registered a growth of 8% YoY in its revenue (excluding acquisitions) and 13% YoY in its EBITDA in Q3FY21. REA has seen a recovery in the Australian residential market, mainly in the month of February and March 2021. In Sydney, residential listings were up by 5% and 13% in Melbourne with 8% YoY growth for national listings.

Operation Summary (Source: Company Reports)

An Update on Scheme Implementation Agreement: Australian Securities and Investment Commission (ASIC) has registered the scheme booklet after REA has announced a Scheme Implementation Agreement (SIA) on 29 March 2021 to acquire 100% shares of Mortgage Choice Limited (ASX: MOC). REA is likely to acquire 100% outstanding shares in MOC for a price of $1.95 cash per share, representing an enterprise value of $244mn. The scheme booklet will be dispatched to the shareholders of MOC to inform them about the scheme and take their voting rights.

Key Dates (Source: Company Reports)

1HFY21 Financial Highlights: The company has registered a decline in operating income to $430.35mn in 1HFY21 against $440.33mn in 1HFY20. Despite a decline in operating income, REA has posted an increase in profit to $173.48mn in 1HFY21 against $147.71mn in 1HFY20. The company has posted a decline in cash and cash equivalents to $179.85mn as on 31 December 2020 against $222.84mn as on 30 June 2020.

Key Risks: REA holds interest-bearing loans and borrowings, so any severe change in interest rates may lead to financial loss for the company. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company.

Outlook: REA has seen a recovery in the residential property market in April 2021 with increased customer enquiry on lower interest rates and strong bank liquidity. REA expects developer revenues to get support through lower-yielding developments for the remainder of FY21. Revenues from the Commercial segment and Asia is expected to witness a growth in Q4FY21. 

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

Data Source: Refinitiv, Thomson Reuters, 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 return of ~4.04% in the last one month and a return of ~-0.50% in the last three months. The current market capitalisation of REA stands at ~$20.32bn as of 7 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$86.80-~$163.75. On the technical analysis front, the stock has a support level of ~$142.53 and a resistance of ~$160.65. We have valued the stock using a Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in H1Y21profit and a decline in operation and administration expenses. For this purpose, we have taken peers Carsales.Com Ltd (ASX: CAR), Seek Ltd (ASX: SEK), Domain Holdings Australia Ltd (ASX: DHG). Considering the company has seen an increase in profit despite a decline in operating income, recovery in the residential property market in April 2021, positive outlook, and valuation, we recommend a “Hold” rating on the stock at the current market price of $156.05, up by ~1.436% as on 7 May 2021.

REA Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

IOUpay Limited

IOU Details

Agreement for Bill Payment Services: IOUpay Limited (ASX: IOU) is a financial technology and digital commerce software solutions and services company in Australia. The company’s technology platform enables customer groups to connect to end user customers using any mobile device and integrate mobile technology throughout the existing business and customer product offerings. IOU has entered in an agreement with RMS Reloads for bill payment service. Under the 3-year agreement (Renewable Terms), RMS Reloads will enable IOU customers to utilise their BNPL services at any of the merchant network of RMS Reloads. RMS Reloads has more than 10k physical points of presence that may allow IOU to access a higher number of customers through the RMS Reloads merchant network.

Business Update for Q3FY21: IOU is continuing with an expansion of its presence through partnerships with merchants. As reported on 30 April 2021, IOU has signed three agreements with Malaysia’s largest merchants – iPay88, EasyStore and MYP1. Under the agreement, IOU is likely to access a total of 85k merchants, including e-commerce and in-store merchants. During the quarter, IOU has launched Merchant and Consumer App services to provide BNPL platform and services related to BNPL.

1HFY21 Financial Highlights: The company has registered an increase in total revenue to $3.71mn in 1HFY21 against $3.46mn in 1HFY20 on the back of higher other income. Despite an increase in total revenue, the company has incurred a loss of $1.15mn in 1HFY21. IOU has registered an increase in its cash and cash equivalent position to $8.54mn as on 31 December 2020 against $0.57mn as on 30 June 2020.

Cash Position (Source: Company Reports)

Key Risks: IOU utilises technology platforms to connect with its customers, so any technology failure may lead to business loss for the company and subsequently financial losses. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company.

Outlook: IOU is likely to continue with partnership opportunities to grow its merchant network and customer base, going forward. The company is focused on capitalising opportunities in South East Asian (SEA) region through access to merchants and large customer base by providing BNPL services.    

Stock Recommendation: The stock of IOU has corrected by ~3.84% in the last one month and has provided a return of ~120.58% in the last three months. The current market capitalisation of IOU stands at ~$209.53mn as of 7 May 2021. The stock is currently trading lower than the average 52-weeks’ price level range of ~$0.004-~$0.850. On the technical analysis front, the stock has a support level of ~$0.317 and a resistance of ~$0.431. On a TTM basis, the stock of IOU is trading at a price/book value multiple of 14.5x, lower than the industry average of 17.7x. Considering the company has seen an increase in total revenue, cash and cash equivalent, increasing partnerships with merchants to enhance customer base, and valuation on TTM basis, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.375, down by ~1.316% as on 7 May 2021.

IOU Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: 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.

Disclosure: IOUpay Limited (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any related insights concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.