FY20 result: REA Group (ASX:REA) profit down 9%

The REA Group Limited (ASX: REA) share price will be on watch this morning after reporting its result for FY20 which showed a drop of profit and the dividend.

REA Group is the owner and operator of Australia’s leading property site, realestate.com.au. It also operates or has stakes in various other property sites in Australia and around the world.

REA Group’s FY20 profit

The property business announced that revenue fell by 6% to $820.3 million. EBITDA (click here to learn what EBITDA means) was down 5% to $492.1 million. Net profit after tax declined 9% to $268.9 million.

In Australia national listings were down 12% for the year. The number of Melbourne listings were down 8% for the year and Sydney listings were down 6% for FY20. However, the number of project commencements were down 27%. Australian residential revenue dropped 4%, lower listing numbers were partially offset by price changes.

During the year the company provided subscription discounts and changes to its listing products to support customers and the broader real estate market because of COVID-19.

Commercial and developer revenue dropped 7% and media, data and other revenue fell 19%. Media, data and other revenue declined by 19%.

The company boasted that realestate.com.au is still the market leader. The number of visits to the site rose by 18% year on year. Over 61% of people exclusively use realestate.com.au when looking for a property. That’s strong brand power.

In Asia, where the company has investments in Malaysia, Hong Kong, Thailand and China, the Asian division achieved revenue of $47.9 million and EBITDA of $8.9 million. However, due to Hong Kong troubles and COVID-19, the company has recognised an impairment of $141.2 million for the Asian division with its investments in Elara and 99 Group.

REA Group also reported that for Move Inc, the property portal in North America that it owns 20% of, revenue fell 2% to US$473 million. REA Group’s share of its losses was $7.2 million, down from $8.4 million last year.

Dividend and balance sheet

REA Group revealed that its balance sheet was still strong with low debt levels with a cash balance of $223 million at the end of FY20. It has access to $149 million of undrawn facilities and a $20 million overdraft facility to access if required.

The board declared a final dividend of $0.55 per share, bringing the full year dividend to $1.10 per share, down 7% from last year.

Outlook

REA Group said that there is still uncertainty. In July, national listings were up 16% with Sydney listings up 47% and Melbourne listings up 13%.

However, the latest COVID-19 restrictions in Melbourne which ban physical property inspections are likely to cause “significant” short term weakness. Projected reductions in new development project commencements and listing volume declines in the commercial and Asia businesses is likely to hurt revenue in the first quarter of FY21.

The company deferred price increases that were due on 1 July 2020, it will continue to defer unless a sustained residential market recovery is evident.

But the company is expecting core operating costs are expected to be approximately 5% to 10% lower in the first quarter of FY21 compared to FY20.

Summary

It was a pretty resilient result, all things considered. But that final FY20 quarter was being compared to the quarter which included the federal election last year, so it didn’t seem too bad. If the Victorian market hurts the overall picture then REA Group may have a difficult FY21, particularly if NSW also starts seeing rising COVID-19 cases. I would be cautious about buying REA Group shares today, though I think its long term outlook is still fairly positive with its international property portal investments. I think it may be priced too highly, there may be difficult conditions for longer than expected. There are other ASX growth shares I’d rather buy first.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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