Where To Look For Growth And Value– REA

Where To Look For Growth And Value– REA

REA Group Limited (ASX: REA) has recently announced its H1 FY19 results for its core operations where its revenue from ordinary activities increased by 15% to $469.2 Mn in 1HFY19 from $406.8 Mn in 1HFY18. It was mainly driven by a 15% increase in Australian business, exhibiting strong performance in the Residential business including Hometrack business. It was supported by Smartline business whose full half-year contribution was better than its contribution in five months in the prior period. The Australian market posted a positive result in the challenging market with fewer new dwellings commencements and lower listings. Listings declined by 1% in Melbourne and 10% in Sydney.

Its realestate.com.au is the most preferred online property search site for sellers, buyers, and renters in Australia. Other famous websites operated by the group are realcommercial.com.au and Flatmates.com.au. The company’s offered products such as Audience Maximiser and FrontPage contributed well in revenue realization.

Commercial depth penetration, acquisition of new customers, and increase in project profile duration helped the commercial and developer businesses to post 10% growth in revenue despite a decline in new project commencements.

Its marketing strategy includes online property advertising, connecting with people by offering them value added services such as lifestyle and financial services, and extending its global reach especially into large and growing markets. To deliver a faster experience, the company upgraded its application to improve speed on all devices by 5.6 times. It launched tenant verifications which helped both parties to gain trust.

Due to its strategic marketing programs, the company witnessed 73.4 Mn total visits on its platform “realestate.com.au” which was more than 2.8x as compared to the previous period. It also observed an increase in app downloads by 16% which was more than 8.5 Mn.

Its EBITDA increased by 19% from $242.8 Mn in December 2017 to $289.1 Mn in December 2018. Its NPAT increased by 20% from $147.3 Mn in December 2017 to $176.6 Mn in December 2018.

Owing to strong operating cash-inflow, the Board of the company declared a dividend of 0.55 AUD with payment date on March 19, 2019, and record date on March 5, 2019.

The objective of the company is to provide highly relevant and personalized experiences to its customers. For that, the company plans to continue its investments in operations. However, it expects challenging market conditions this year. Listings are expected to remain weaker due to New South Wales Election in March and Federal elections with a tentative date in May. Moreover, the BIS Oxford has forecasted a decline in new apartment commencements this year. The company expects the rate of revenue growth to exceed cost growth in H2 FY19 and the entire full year, but the third quarter would be challenging.

REA’s share price last traded at $81.97 up 0.453% on March 7, 2019, with the market capitalization of ~$10.75 Bn. Its current PE multiple is at 87.55x and EPS was noted at A$0.932. Its 52 weeks high has been noted at $94.12 and low at $69.23. It has posted a positive YTD return of 9.88%. Its absolute return for last 1 year, six months and one month are 6.82%, -6.21% and 7.44% respectively as on March 06, 2019.


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