Playing possum
3Q23 RESULT
Need To Know
- Listings weaker heading into 4Q23
- Yield growth heading towards double digits for FY24f while cost growth contained to single digits
- REA still the dominant portal, positioned for long term growth
Hesitant homeowners have frozen in the interest rate headlights causing residential listings to fall further from last year’s peaks. REA’s revenue and earnings have stalled momentarily, but this is a yield driven story.
April residential listings continue to look weak (National -24% yoy, Sydney -25%, Melbourne -22%) made worse by the strong listings volumes in the previous comparable period. The same theme will play out in the fourth quarter this year. Vendors have hesitated given the quick rise in mortgage interest rates this year and this has exacerbated the decline in listings.
But REA says property prices have stabilised in recent months as supply has shrunk and migration (domestic and international) continues to grow.
REA is expecting yield growth of ~10% in FY23f driven by a 6% price rise, on-going penetration of depth and Premier products and the contribution from Premier+. Offsetting this is a significant geographical mix shift in listings.
In FY24, REA is anticipating double-digit yield growth as a 12% price increase for Premier+ weighs in.
Operating costs are expected to increase in low single digits in FY23. Planned investments in India will mean an EBITDA loss for REA India and the combined group associates will also report a loss.
Investment View
Even the RBA expected house prices to decline by more than has occurred this year. Property market commentators are suggesting momentum is turning positive. This is a precursor to more confident behaviour by vendors and buyers now that the shock of the rapid increase in interest rates has been absorbed.
Listing volumes remain below mid-cycle levels, but investors should be paying more attention to the consistent price increases being implemented and the total yield increase REA is achieving, even in a soft environment.
While we maintain a Hold rating on REA, any share price weakness following this result could be an opportunity to change our view.
Figure 1: RESIDENTIAL LISTINGS GROWTH - MELBOURNE
Figure 2: RESIDENTIAL LISTINGS GROWTH - SYDNEY
Figure 3: REA 3Q23 RESULT
Stock Overview
Share Price
Company Overview
REA Group is a global digital business specialising in online real estate. It has a leading market position in Australia. It owns and operates adjacent businesses in home loans, mortgage applications, property data services and an array of other property related service businesses.
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