Diversifying investments and maintaining market leadership: REA Group Limited (ASX: REA) is maintaining its market leadership Australian business realestate.com.au, wherein the group reported an average monthly visits to realestate.com.au main and mobile sites growth by 26% during FY15 and is 24.3 million above per month as compared to the number two site. REA group’s iProperty investment in Asia paid off, with the Asian business delivering a solid revenue growth of 88% year on year (yoy) to $4.5 million in FY15 and EBITDA surge of 150% yoy to $0.6 million. European operations also generated a growth of 6% to $45.6 million during the period while reporting an outstanding EBITDA growth of 85% to $9.7 million. The Average monthly visits to the group’s combined European sites rose by 7% to 10.6 million, partly contributing to the revenue increase.
REA’s portfolio (Source: Company Reports)
The company is strong in the Australian market and has been always at the forefront in improving its services and launching new products to expand the addressable market. It is further targeting the utility connection market and home finance leads through partnerships channels. The cash flow from operations for FY15 has been reported to be of the order of $200 million which has been indicated to be used for dividend payments and further future investments. The company is also all set to work around its Move, Inc. (US) which has not been performing strongly.
Stock Performance: REA Group shares rallied by 5.65% in the last three months (as of Oct 20, 2015) and we believe this momentum to continue, given the group’s leadership and improving business across its invested regions. Accordingly, we continue to be bullish on the stock and reiterate our “BUY” recommendation at the current price of $45.82.
REA Daily Chart (Source: Thomson Reuters)
SEEK Limited
Ongoing core business growth: SEEK Limited (ASX: SEK) is seeking to sell a major portion of its stake in IDP Education to have the entire focus on its core business. In FY15, IDP reported a 13% increase in EBITDA. SEK recently announced that the marketing phase for IDP’s IPO is about to start soon. The group is maintaining its market leadership position in Australia, with 32% of placements and a lead of 10x higher as compared to its nearest competitor. The total visits in Australia witnessed a CAGR increase of 22% to 35+million in FY15, from FY12. SEEK is enhancing its Australia and New Zealand online employment businesses and Premium Talent Search promotion. Moreover, the group has integrated JobsDB and JobStreet to Zhaopin in China, as well as acquired market leaders in Brazil and Mexico which would lead to better financial results.
SEEK’s international presence (Source: Company Reports)
Share Performance: Although the group’s conservative FY16 guidance has disappointed the investors, the shares recovered about 9.68% in the last four weeks (as of October 20, 2015), despite the shares falling over 26.17% this year to date. Also, the IDP’s IPO opportunity may be considered as a possible way of SEK’s price re-rating. We maintain our “BUY” recommendation at the current price of $12.86.
SEK Daily Chart (Source: Thomson Reuters)
Greencross Limited
Targeting growth through cross selling and expanding addressable market: Greencross Limited (ASX: GXL) shares improved its retail loyalty membership by 25% yoy to more than 2.9 million members during fiscal year of 2015 while the Healthy Pets Plus membership rose by 43% yoy to >43,000 members during FY15. The group identified that its customers spend 5x more at GXL stores which offers retail, vet and grooming services as compared to customers who shop only at its retail stores and 2x spend by customers who use only Greencross vet. Therefore, the firm is targeting these three growth platforms, to achieve its target to boost the market share from 8% (with 332 outlets) to 20%. GXL has grown its online business by 80% and expanded its gross margins by 50 bps to 55.3%. Even the annual dividend payout has been increased by 36%.
Greencross target pipeline (Source: Company Reports)
Stock Performance: GXL shares fell about 3.88% (as of Oct 20, 2015) in the last six months partly impacted by investor’s reaction on the news with regards to management change. However, the stock rallied 8.79% in the last one month given its enhancing market opportunity and clarity on management. Change in substantial holding from National Australia Bank seems to be a catalyst. We recommend a “BUY” on GXL at the current price of $6.550.
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