Domain Holdings Australia Ltd (ASX: DHG) reported its FY19 results this morning and net profit after tax (NPAT) took a big hit. Here’s what you need to know.
About Domain Holdings
Domain is the business behind one of Australia’s largest property portals, Domain.com.au, which allows property sellers to try to advertise to as many potential buyers as possible. Some of the other real estate websites it operates include Allhomes.com.au and Commercialrealestate.com.au.
Here Are The Five Key Points
- Revenue fell 6.1% to $335.6 million
- EBIT decreased 26.4% to $65.9 million
- Underlying NPAT fell 29.3% to $37.4 million
- Statutory net loss after tax of $137.6 million
- A final dividend of 4 cents per share fully-franked was declared
The video below explains the difference between statutory profit and underlying profit.
Non-Cash Goodwill Impairment
Lower FY19 listings in Sydney and Melbourne required Domain to reassess existing carrying values and growth assumptions. This led to a non-cash goodwill impairment charge of $178.8 million which accounts for most of the difference between underlying profit and the statutory loss reported. This impairment charge was previously disclosed in the half-year report and is almost exactly the same as the goodwill charge that REA Group Limited (ASX: REA) reported earlier this week.
Analyst Estimates
Bloomberg analyst estimates were a net loss after tax of $11.2 million and a dividend of 3.9 cents per share. Domain beat estimates with a 4 cent, fully-franked dividend which will be paid on 10th September 2019.
In terms of NPAT, Domain beat analyst estimates by a significant margin if underlying results are used, but statutory results paint a different picture. In this instance, underlying results may be more appropriate because the difference in the two figures was a one-off, non-cash expense.
Management Commentary
Domain CEO and Managing Director Jason Pellegrino acknowledged that it has been a tough year.
“For FY19 Domain delivered a solid performance in the context of the challenging year faced by the Australian property market,” he said.
“To put this in perspective, property sales as a percentage of Australia’s dwelling stock are at their lowest point in more than 20 years.”
FY20 Outlook
Domain notes that there are some “encouraging signs of buyer activity” in the first weeks of FY20, however, listing volumes remain low. National market new listings declined around 20% in July, with even bigger declines in Sydney and Melbourne.
Domain did not provide guidance for FY20 but said that it will “remain disciplined in managing its cost base to take account of the trading environment, while continuing to invest in growth initiatives”. Domain’s expenses declined by around 5% in FY19.
Summary
While I believe Domain has performed reasonably well given the tough environment, it does seem like REA Group has fared better. REA reported an increase in revenue and underlying EBITDA earlier this week but also reported a similar goodwill impairment charge. If I had to pick between the two right now, I’d probably pick REA Group.
In saying that, I’d prefer one of the businesses in the free report below over either Domain or REA right now.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
