Domain’s acquisition of Realbase bulks up its Agent Services business and boosts the company’s offering in property technology.
Realbase is a real estate campaign technology platform providing services to agents on about 40% of all property transactions. The platform enables agents to seamlessly construct, price, order and track the campaign marketing products required to list and market a property.
The acquisition will accelerate DHG’s Agent Services strategy and increase its market coverage from 35% to around half of all property transactions in Australia. Many agents still use inefficient and timeconsuming manual processes in this regard.
There is a substantial earnout payment of up to $50 million which, at the maximum, would reflect a five-fold increase in Realbase’s operating earnings by FY26f. DHG can elect to pay the earnout in either cash or scrip.
If DHG can lift the earnings of Realbase by 15-20% pa over the next few years, and extract around $18 million of estimated synergies by FY26f, then the total acquisition price will have proved to be very smart.
Realbase will contribute approximately $22 million revenue and $9 million EBITDA to DHG’s FY22f result.
DHG has so far invested about $330 million in agent services across a number of businesses. The aim of Agent Services is to leverage its salesforce and relationships to increase penetration of both agent and listing products across its customer base.
Investment view
DHG provided an update on Q3 trading which showed listings growth is robust but beginning to slow down compared to strong comparable numbers last year. The Realbase acquisition appears to be sensible and provides further growth for Agent Services. The equity raised will dilute earnings slightly, but we note that NEC has committed to take up its full entitlement representing 59% of the raising. DHG’s medium and long term growth is being driven by yield uplift and growth in Agent Services. We think recent share price weakness presents investors with a buying opportunity.
Risks to investment view
Growth in listings volume may slow down due to the approaching Federal election and possibly due to the threat of rising interest rates. Competitive pressure may also subdue yield growth.
Recommendation
We have retained our Buy recommendation.
