REA Group Limited

REA Business Details

REA Group Limited (ASX: REA) is a leading global digital advertising business specializing in property, with over 2,800 people working across three continents. REA Group runs Australia’s leading residential and commercial property websites, realestate.com.au and realcommercial.com.au.

Result Performance for the Half-Year Ended 31 December 2021 – H1FY22

• The revenue from core operations stood at $590.4 million, up 37% YoY, primarily driven by increased significant lines of business, including a 31% rise in Australian Residential.
• The EBITDA, including associates, grew by 27% YoY to $368 million. The 8% stake in PropertyGuru Pte. Ltd. contributed an equity accounted loss of $4 million in H1FY22 to core group EBITDA.
• Core operating costs, excluding acquisitions, grew by 17% in H1FY22 due to continued investment to offer strategic initiatives and higher salaries in a tight labour market. The rise in add-ons like Audience Maximiser has increased the variable costs related to these products.

Source: Company Reports, Analysis by Kalkine Group

Outlook

The company anticipates that the fundamentals of the residential property market will remain positive with the balance between the supply of properties and demand from buyers. National listings are expected to be at the lower end YoY in Q4FY22 due to complete prior period listings and potential impacts from the federal election. Further, it continues to target positive operating for FY22, excluding the effect of the REA India and Mortgage Choice acquisitions and low-double-digit operating cost growth.

Key Risks

REA operates in a highly competitive market. Developing new technologies and higher competition from existing or new sites and apps could impact its business model. Further, its group business activities, particularly the real estate listings and financial services, are extremely reliant on the exposure to macroeconomic, regulatory, legal, and geopolitical conditions across its operating markets viz, Australia, India, and Asia.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock is trading lower than the average of the 52-week high price of $180.67 and the 52-week low price of $104.07.

The stock has been valued using a P/E multiple-based illustrative relative valuation, and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to P/E Multiple (NTM) (Peer Average), considering strong result performance in H1FY22, its growth strategies, and pivotal investments to drive growth in the rest of 2022.

Considering the aforementioned factors along with decent outlook and liquidity position, we give a “Buy” recommendation on the stock at the closing market price of A$105.40 per share, up 0.38% as of 10 June 2022.

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.

REA Group Limited (REA) is a part of Kalkine’s Global Big Money Product

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.