REA: Putting property in perspective

By Trevor Hoey. Published at Aug 9, 2016, in Features

Multinational digital property advertising group, REA, announced on Tuesday morning that the company had generated a net profit of $214.5 million from revenues of $629.8 million.

It will be interesting to see the reaction to this result given the company’s shares have defied positive market sentiment in recent weeks, falling from an all-time high of $65.77 at the end of July to yesterday’s closing price of $60.20.

The sell-off over recent days indicated that the market may have been bracing itself for an underperformance. Notwithstanding these gyrations, it should be noted that share prices are subject to fluctuation and investors should take a cautious approach to any investment decision in this stock and not base that decision solely on price movements.

Looking at the last 12 months, REA’s shares had rallied strongly with yesterday’s close representing an increase of circa 50% on the low of approximately $40.00 struck in September last year.

Whether revenue growth of 20% and the year-on-year net profit increase of 16% will be enough to satisfy investors that the company’s fiscal 2017 PE multiple of circa 32 relative to consensus forecasts is warranted remains to be seen.

However, we should get a glimpse of that today. To provide perspective, the net profit of $214.5 million was broadly in line with Macquarie’s expectations ($213.3 million), but shy of Morgans CIMB ($219.3 million).

Morgans was also more bullish on the dividend front, expecting a full-year return of 90 cents per share compared with Macquarie’s estimate of 81 cents per share. REA declared a final dividend of 45.5 cents, bringing the full year dividend for fiscal 2016 to 81.5 cents, an increase of 16% compared with 2015.

From an operational perspective, Chief Executive, Tracey Fellows said, “The year was marked by global expansion with our acquisition of iProperty group, giving us a foothold in South East Asia and extending our operations which now span four continents”.

Fellows also highlighted that the company had launched the global property network giving consumers access to more than 3 million listings from 56 countries, while continuing to cement its leadership position in Australia on the back of record audience and engagement.

These upbeat statements may to some extent be overshadowed though by a relatively soft outlook statement. Fellows said that the Federal election had resulted in lower listing volumes across the campaign period.

The uncertainty surrounding the election outcome contributed to July listings being down 11% compared to the previous corresponding period. As a result, first half revenue growth is expected to be skewed towards the second quarter.

Fellows also noted that the headline expense growth in the first half will be higher than revenue growth entirely due to the inclusion of iProperty.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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