Yield shield
1H23 RESULT
Need To Know
- Property listings down but not out
- Double-digit yield growth expected for the full year, supported by 6% price increase
- Interim dividend 75cps fully franked, payment date 21 March
Considering the weak property market, REA’s interim result was good and ahead of consensus expectations. The decline in residential listings has eased to -9% in January after a miserable December quarter (-21%).
REA is still anticipating double-digit yield growth for the full year which highlights the strength of its franchise.
1H23 result. EBITDA (excluding associates) $358.9m was down -1.9% on revenue $617m, +5% on the pcp. Higher losses from associates pulled group EBITDA down by -5.6%.
Revenue growth of 4.8% in the core Australian residential business was driven by 13% yield growth. This more than offset a -9% fall in listings.
Core Australian operating costs increased 7% in the period to $199m pushed higher by wage inflation and further investment in strategic initiatives. Group operating costs increased 15% as investment in India ramps up significantly.
The interim dividend of 75cps was the same as last year.
Investment View
The market can be too fixated on the ups and downs of residential property listings (volume) but pays less attention to the real earnings driver which is yield. REA’s undisturbed position as the number one online real estate advertiser provides the base upon which it has expanded its services and products, particularly its depth listings which has been the backbone of its growth.
The company’s outlook statement drew attention to the difficulty of predicting the volume of listings. REA said it may not achieve a ‘positive jaws’ outcome (revenue growth ahead of cost growth) for the year although Australian operating costs should decline in 2H23f.
Further investment in India will extend losses from associates but the opportunity in this market is promising.
This was a sturdy result in a difficult market with interest rates and inflation both rising. Homeowners typically batten down the hatches in this environment but REA’s ability to generate yield growth is its key weapon. The company is anticipating another price increase next year.
Still a Hold on valuation grounds – PE ratio 42x FY23f consensus EPS forecasts and 24x EV/EBITDA.
Figure 1: REA 1H23 Result
Figure 2: Australian Residential Listings Growth
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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