Out the back door
1H23 RESULT
Need To Know
- EBITDA in-line with consensus
- Residential volume -9.5%, similar to REA
- Interim dividend 2cps, payment 14 March
As the Australian housing market quivers in the face of rising interest rates, residential property listings are retreating. Yield increases from more innovative products and service is offsetting some of this, but costs are under the pump as warned in December.
Just before Christmas last year, DHG told the market it was pulling the drawer string on its cost base as a consequence of the “meaningful change in the property market operating environment”. FY23 costs were adjusted towards $250-255m, down from $275-280m previously. The property market has been in retreat at least since the November AGM so DHG has had plenty of time to prepare. The December listings in Sydney (-51%) and Melbourne (-37%) dropped precipitously on 2022 levels.
DHG pointed 1H23 EBITDA towards $48m and turned in a result of $49.3m so the market should have anticipated this. The core digital segment nonetheless saw its margin fall to 37.5% (45.3% in pcp) and hence the net profit of $15.9m was a chunky 40% lower than last year.
Investment View
The challenge for DHG is fairly clear, in our view. Cost management has to match the cyclical fall in residential property listings to maintain operating margins. Our Sell recommendation indicates we believe the weak housing market will be detrimental to DHG’s earnings in spite of its best efforts on cost containment.
Operating costs actually increased 29% in 1H23 following recent acquisition activity plus the effect of investment initiatives across the group. The latter is certainly on hold for now.
DHG said EBITDA margins will see a low single digit percentage reduction compared to FY22 on an on-going cost basis. That will depend on whether the cost containment program is sufficient.
In a weak market, being the second placed online real estate portal is not ideal.
DHG has steadily been building a competent business with an emphasis on improving yield particularly, rather than relying on just volume growth. The Agent Solutions is a good example of this.
The share price has not fully adjusted for the weaker earnings outlook, in our view.
Figure 1: 1H23 RESULT
Stock Overview
Share Price
Company Overview
Domain Holdings is an online and print real estate advertising business. It has adjacent businesses in home loans, insurance and solutions for real estate agents.
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