REA Group Limited (ASX: REA) has reported its half year result to 31 December 2018, is it a buy?
REA Group is the owner of Australia’s most popular real estate portal, realestate.com.au. It owns other property leading sites such as realcommercial.com.au too. It also has stakes in several other international property sites in the US, South East Asia and India.
REA Group’s half year result
Core Operations Result
REA Group said its core operations revenue grew by 15% to $469.2 million, EBITDA increased by 19% to $289.1 million, net profit grew by 20% to $176.6 million and earnings per share increased by 20% (click here to learn what EBITDA means).
But, there’s more to the result than just the above figures.
The Australia segment grew revenue by 15% to $443.2 million. This was despite national listings decreasing by 3%, with a 10% listings decline in Sydney and a 1% decline in Melbourne. The revenue growth came about from price increases and improved product mix.
The commercial and developer businesses achieved 10% revenue growth, despite a decline in new project commencements.
Media, data and other revenue grew by 19% to $55.4 million thanks to the inclusion of Hometrack and greater display advertising. Hometrack is on track to achieve previous guidance for FY19 of revenue between $14 million to $16 million and EBITDA of $6 million to $7 million.
Realestate.com.au continues to achieve 2.8 times more average monthly visits compared to nearest competitor and visitors spend five times longer on the realestate.com.au app. The competitor REA Group is referring to is Domain Holdings Australia Ltd (ASX: DHG).
The Asian business grew revenue by $26 million and generated EBITDA of $3.5 million. The EBITDA includes the equity accounted results of REA Group’s 14.1% Indian investment PropTiger, which delivered revenue growth of 68%. Excluding associates, EBITDA grew 27% to $5.7 million.
However, despite the pleasing numbers, macro economic conditions have caused REA Group to decide to reduce the carrying value of goodwill for the Asian business with an impairment charge of $173.2 million.
REA Group has a 20% stake of Move Inc, which operates realtor.com. Average monthly unique users grew 6% to 53 million. It increased revenue by 11% to US$240 million. The share of losses for the period was $2.5 million, up from $0.6 million, excluding transaction costs and the impact of the change in US tax rates.
During the half, Move Inc acquired Opcity which matches qualified home buyers and sellers with real estate professionals in real time.
Based on the 20% growth of core operations net profit, the REA Group Board decided to declare an interim dividend of 55 cents per share, which was a 17% increase.
REA Group doesn’t expect conditions to improve in the short term. Listings could be weaker over the next few months due to state and Federal elections.
The real estate business expects revenue growth to exceed cost growth for the second half and full year, however the March 2019 quarter will likely not show this due to lower listings in the quieter January month.. A lower growth rate is expected in the second half.
Is REA Group a buy?
REA Group shares have fallen 2% in early response to this result, which is perhaps understandable because REA Group is forecasting slower conditions in this half year.
However, I think it points to the quality of REA Group that revenue keeps going up strongly despite the tough operating conditions.
Whilst I would prefer to buy REA Group shares 5% or 10% lower than today, I believe it could be a solid long term investment at today’s price.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).