The REA Group Limited (ASX: REA) share price is on watch today after the property portal business announced an Asian deal.
REA Group’s Asian deal
It has been announced that REA Group is going to combine its Malaysian and Thailand businesses with PropertyGuru.
What that means is that REA will transfer ownership of its Malaysia and Thailand entities (which operate iProperty.com.my and Brickz.my in Malaysia and thinkofliving.com and Prakard.com in Thailand) to PropertyGuru in exchange for an 18% stake in PropertyGuru. REA will get one seat on the board.
It will continue to retain ownership of its Hong Kong and Myfun businesses.
What’s PropertyGuru?
It’s a property portal business that operates marketplaces in Singapore, Vietnam, Malaysia, Thailand and Indonesia.
What are the benefits of the deal?
The combined businesses will have access to a deeper pool of expertise, technology and investment which will accelerate innovation and provide enhanced digital solutions to home seekers, property agents and developers.
Management said the proposed transaction will provide REA with a strategic shareholding in a larger, more diversified company in a region that continues to experience rapid digitalisation.
Management comments
REA Group CEO Owen Wilson said: “Building on the success of our operations in Malaysia and Thailand, this transaction presents a unique opportunity to create the most compelling digital property classifieds company in Southeast Asia and accelerate the next wave of proptech innovation across the region.”
Financial impacts
This is expected to see REA report an overall gain on divestment of approximately $10 million. In FY21, the Malaysia and Thailand businesses are expected to add $15 million to REA Group’s revenue, but reduce EBITDA (EBITDA explained) by approximately $11 million.
Summary thoughts on REA Group and the share price
REA Group is a high quality business with a very strong market share of the real estate advertising world. I’d be happy if I were a long-term shareholder.
Its international investments are very useful additions to the business case for REA Group, in my opinion.
However, the REA Group valuation looks full at almost 50 times the estimated earnings for the 2022 financial year. It’s a solid blue chip business, but there might be smaller ASX growth shares that could deliver more growth.
