No place like home

RESULTS ANALYSIS

Need To Know

• In-line result despite much lower listings in FY23.
• Double-digit yield growth tipped for FY24 as average national prices to increase 13%.
• Demand for Australian residential property is unrelenting, supporting earnings growth.

Investment Implications

Last year’s post-pandemic surge in listings reversed in FY23, hampered by much higher interest rates and plummeting seller confidence. But demand for housing is unrelenting in Australia and listings will inevitably recover. However, the key earnings driver is yield growth. REA’s dominant market position continues to capitalise on its innovation.

FY23 result. EBITDA (excluding associates) of $651m was -2.9% on pcp and modestly ahead of consensus at $648m. Core Australian revenue was down -1.1% comprised of a -12% in listing volumes offset by an 11% increase in yield. The core Australian business which dominates earnings was broadly in-line with expectations. FY23 net profit of $372m was also slightly above consensus at $369m. A final dividend of 83cps (full year 158cps) was declared and REA is now carrying $789m of franking credits on a balance sheet that has net debt to EBITDA at 0.22x.

REA acquired the rest of ‘CampaignAgent’ for $39m during the year. This is a vendor paid advertising and home preparation financing business that gives vendors control of their own selling process.

REA India is showing good progress although its financial contribution is still small – revenue $79m. The addressable market is large, and REA is moulding this business to its own proven template.

In Australia, the growth in Premiere+ continues unabated and is the foundation for REA’s consistent yield uplift. National average pricing is expected to increase 13% in FY24 after achieving a 6% price increase in FY23. More than 12.1m people visit the website each month generating 121m monthly visits which is 3.3x more than Domain. This draws an average 2m monthly buyer enquiries  - the crucial element for agents to conduct a successful campaign.

Outlook. Costs are expected to be up ‘high single digit to low double digit’ in FY24 after increasing 7% in FY23. The average price rise of 13% in July will outrun the anticipated flat horizon for listings in FY24 although we think this is conservative.

Losses from associates will continue as the businesses are developed and scaled. Higher depreciation and interest costs will also weigh on earnings growth for the year.

We like the long term outlook for REA but retain our Hold recommendation given a stretched PER at ~45x FY24E.