Renovators delight
RESULTS ANALYSIS
Need To Know
- Early signs of recovery in key Sydney, Melbourne after tough year in FY23.
- FY24 costs to increase mid to high single digit range.
- DHG looks fully valued at >40x FY24 PER, in our view.
Investment Implications
Result Overview:
FY23 EBITDA $103.3m -15% on pcp vs consensus $107.7m
Core residential revenue -6.7%, volumes -13.8%, controllable yield +8%
FY23 result. A big decline in residential listings wrecked the year for DHG even though the 8% lift in controllable yield softened the blow. Compared to REA (listing volume -12%, yield +11% and residential revenue -1.1%), DHG’s result was worse at every level reflecting its inferior market position and hence our preference for REA in the sector.
DHG’s consistent increase in controllable yield is the key positive factor for earnings growth. Price increases, particularly for depth products, has been a regular feature (similar to REA) and this should continue as more innovation and value-add is brought to the tool-kit available to agents and consumers. Collectively, DHG calls this approach its Marketplace Strategy. It does require investment and development which takes time to (hopefully) achieve a return on the investment. This isn’t guaranteed as the decision to sell the Domain Home Loans joint venture shows, as it failed to achieve what DHG wanted.
Outlook. DHG is seeing early recovery in new listings in the high value Sydney and Melbourne markets so far in FY24, offset by more weakness in Queensland and WA. Keeping an eye on costs will be important as DHG is expecting an increase in the mid to high single digit range from the FY23 cost base of $237m.
DHG expects to see some EBITDA margin expansion in FY24 on better listings, price increases and greater penetration of its depth products.
Investment View
The residential property market is improving, and the prospect of a stronger Sydney and Melbourne market is crucial for DHG. However, the cost guidance for FY24 is higher than expected placing some constraint on earning growth. Adjacencies such as Agent Solutions are performing well, so DHG can still enhance the business in many ways that are unrelated to volume. The FY24 PER at over 40x keeps our recommendation at Hold.
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.
Disclaimers and Disclosures
Issuer
The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").
Reliance
Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.
General Advice
Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs.
General Disclosures
This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au.
Currency of Research
The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.
Access and Use
Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.
Equities Research Methodology
Please click here for information about MST equities research methodology.
Related Reports
Stateside
CAR made a presentation on its US business, Trader Interactive (TI) detailing the growth opportunity.
One eye on AI
A much improved second half year saved News Corporation’s blushes to the point where the share price has overcompensated, in our view. We lower our recommendation to Sell.
Below reserve
Domain’s trading update did not contain any positive short term news. However, the residential property market, on which its earnings depend, is exhibiting signs of improvement that will support an earnings jump in FY24f for DHG.