3 ASX stocks go ballistic: REA, ARB & Domain trade at all-time high

  • October 27, 2020 09:19 PM AEDT
  • Team Kalkine
    Team Kalkine
    Team Kalkine
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3 ASX stocks go ballistic: REA, ARB & Domain trade at all-time high

Summary

  • The shares of Rea Group, ARB Corporation and Domain Holdings are trading near their respective 52-week high price, thus drawing the attention of market players.
  • The development during FY2020 amid the challenging COVID-19 environment, coupled with the packages announced in FY2020-21 Federal Budget, supported these stocks’ rally on the ASX.
  • Robust cost management and efficiencies gained from an organisational realignment helped REA Group cut operating expenses by 9%.
  • In Q1 FY2021, ARB achieved sales revenue growth of 17.7%. The results followed a decent FY2020 for the Company with an increase of 4.8% in sales revenue.

ASX-listed players Rea Group, ARB Corporation and Domain Holdings Australia Limited have been on the rise with the shares trading near their 52 weeks high price. In the last six months, the shares have performed reasonably well, delivering a return of 47.34%, 122.78% and 47.34% respectively.

Significant operational and financial achievements in FY2020 helped the three stocks rise sharply on the ASX. Further, the packages announced in the media and entertainment industry and infrastructure investment in the Federal budget acted as tailwinds for the companies.

In the media and entertainment sector, the Government announced a package of A$53.2 million over three years from 2020-2021 to support the screen sector. Overall, the initiatives taken in the Federal budget 2020-21 were a part of the economic recovery plan to help businesses as well as households to get back on their feet.

With this backdrop, let us look at the possible reasons for the impressive performance of the three stocks.

GOOD READ: Industry Reviews on Federal Budget 2020

DO WATCH: What are the Industry Reviews on Federal Budget 2020? |Kalkine Market Update AUS|

Rea Group Ltd (ASX:REA)

A multinational digital advertising business, REA Group Ltd operates leading residential and commercial property websites in Australia. The Company reported a decline of 1.705% in its share price on 27 October 2020. The shares settled at A$124.020, close to its 52-week high price of A$127.620. REA has a market cap of A$16.61 billion.

FY2020 Highlights:

In FY2020,  REA Group reported a fall of 6% in its revenue to A$820.3 million. EBITDA dropped 3% to A$492.1 million, while NPAT was down 9% at A$268.9 million. The full-year dividend declined by 7% to 110 cents as compared to the previous corresponding period (pcp). EPS also decreased by 9% to 204.1 cents.

In 1H FY2020, the Company’s results were impacted due to declines in residential listings and new project commencements. At the start of 2H and the period before the occurrence of COVID-19, the Australian property market showed strong signs of recovery. However, the market suffered during April and May. With ease in the lockdown restrictions, real estate sector responded positively, showing an 11% growth in new residential listings.

During these challenging times, the substantial cost management and efficiencies gained from an organisational realignment helped REA to lower its total operating expenses by 9%.

Developments Q1 FY2021 and outlook:

In July 2020, the national residential listings increased by 16% with robust buyer demand despite COVID-19 impacts. In FY2021, the Company expects positive operating jaws. Further, seeing the current scenario, REA is not targeting any increase in operating costs. In Q1 FY2021, operating expenses would likely be ~5% to10% lower YoY.      

ARB Corporation Limited (ASX:ARB)

ARB Corporation Limited is engaged in the process of manufacturing, distribution and sale of four-wheel-drive motor vehicle accessories and light metal engineering works. On 27 October, ARB share price stood at A$31.450,  close to its 52-week high of A$33.830. ARB has a market cap of A$2.55 billion.

On 07 October 2020, ARB announced that it achieved sales revenue growth of 17.7% for Q1 FY2021 (period ended 30 September 2020). As per the unaudited management accounts, profit before tax for the quarter was A$29.7 million, eliminating non-recurring government benefits of A$9.7 million related to the quarter.

Further, the Company updated that it achieved remarkable growth in the export market. However, domestic Australian sales growth was modest. There was a drop in the OEM sales on pcp.

A Glance at FY2020 Results:

Sales revenue grew 4.8% to A$465.379 million, and revenues from ordinary activities were up 4.6% at A$466.988 million.

Outlook:

In FY2020, the Company’s growth was hampered by difficult local and global market conditions plus the challenges due to COVID-19.

While the short to medium-term outlook is positive, there is a high level of uncertainty concerning the future economic environment. Based on Q1 FY2021, ARB’s board has not provided any guidance for the rest of FY2021.

Domain Holdings Australia Limited (ASX:DHG)

Domain Holdings Australia Limited provides a network of top multi-platform property solutions. DHG share price was down 1.223% at A$4.040 on 27 October. The shares ended the session close to the 52-week high price of A$4.180. DHG has a market cap of A$2.38 billion.

In FY2020 (period ended 30 June 2020) Domain reported statutory revenue of A$280.4 million and a net loss of A$227.7 million with a goodwill impairment charge of A$256.1 million.

By June 2020, the Company was able to reduce its net debt from A$147.9 million in December 2019 to A$105.8 million. Due to the current uncertainty, the Company did not declare any dividend.

Some critical achievements during FY2020:

  • Implemented a new flexible pricing model. It strengthened 6% controllable residential yield, with additional gains from the market mix.
  • Reported a 23% growth in organic traffic. It represents an acceleration from 18% growth attained in the 1H FY2020.
  • Noted an 83% growth in Consumer Solutions’ revenue.
  • Cut 24% in marketing cost per lead. It reflects efficacy gains plus record organic audiences.

INTERESTING READ: Are These 5 Stocks Beating Investors' Expectations: DHG, SGR, FLT, NWS, NEC

Outlook:

In July 2020, the Company reported strong year-on-year listings growth in Sydney and Melbourne with improved market activity in a seasonally low period. Despite the strong July trading, the broader market outlook remains uncertain.

The Company highlighted that 1H FY2021 would depend on the health and economic outcomes of COVID-19 and especially the return of additional typical seasonality patterns for the Spring selling season.

In FY2021, DHG aims to remain disciplined in managing the cost base to take account of the trading environment, whilst maintaining investment in growth programs.

 

 


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