REA Group Limited

REA Business Details

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

H1FY22 Result Performance (For the Period Ended 31 December 2021)

• The group has recorded 37% YoY growth in operating income from core operations to $590.4 million in FY21. It includes the consolidation of the REA India from 1 January 2021 and Mortgage Choice from 1 July 2021.
• EBITDA from the group's core operations increased by 27% YoY to $368.0 million, and net profit from core operations attributable to owners of the parent improved by 31% YoY to $225.8 million.
• The Board has determined to pay an interim dividend of 75.0 cents per share fully franked that showed an increase of 27% YoY.

Source: Company Reports, Analysis by Kalkine Group

Outlook

The Group generated positive operating cashflows and traded profitably for the half-year ended 31 December 2021. The directors expect this to continue for the near future. The Group strengthened its liquidity position by entering a new syndicated facility, replacing the previous facility. Further, the company highlighted that residential property market conditions remain favourable, with high levels of buyer enquiry reinforced by improved supply. The company expects the YoY growth rates to slow in the second half. Further, the company forecasts the operating cost growth excluding acquisitions to slow to high-single-digit growth in H2FY22 due to a more normalised prior period comparative and continued investment in growth initiatives. FY22 operating cost growth is expected to be of low-double digits, against its earlier expectation of high single digits growth, reflecting an increase in revenue-related variable costs.

Key Risks

REA operates in a highly competitive market. Its business model could be impacted by developing new technologies and higher competition from existing or new sites and apps. 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 $131.33.

The stock has been valued using a Price/EPS 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 Price/EPS Multiple (NTM) (Peer Average), considering strong result performance in H1FY22, its growth strategies, and pivotal investments to drive growth.

Considering the aforementioned factors along with decent outlook and liquidity position, we give a “Buy” recommendation on the stock at the current market price of A$140.43 per share as of 4^th February 2022 (Time: 11:17 AM (GMT+10), Sydney, Australia).

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.