The REA Group Limited (ASX: REA) share price could rise after announcing another investment in the mortgage sector.
What is REA Group buying?
REA Group has bought approximately a third of Simpology Pty Ltd, which is described as a leading provider of mortgage application and e-lodgement solutions for the broking and lending industries.
It’s an Australian company that is focused on increasing the efficiency of the mortgage application process. It provides services to lending and broking partners across Australia and New Zealand. Simpology’s products enable brokers to seamlessly lodge home-loan applications directly into lenders’ back-end systems.
The $15 million cost of this acquisition has been funded from the group’s existing cash reserves. REA Group will take two seats on Simpology’s board.
The push for the mortgage market
This acquisition adds to the recent proposed acquisition of Mortgage Choice Limited (ASX: MOC), so it will further accelerate the company’s financial services strategy.
Management said the strategic alliance with Simpology will enable REA Group to provide consumers with greater choice and simplicity when navigating their home loan options. It will also deliver productivity improvements to REA’s broker network through higher quality loan submissions, resulting in less re-work, faster loan approval times and streamlined business operations.
Management comments
REA Group CEO Owen Wilson said: “REA’s investment in Simpology reinforces our commitment to delivering the best end-to-end mortgage application solution for consumers, our brokers and their clients.
“Simpology has deep integrations into over 30 lenders and over 12,000 brokers. Our partnership will provide a step-change in the loan selection and digital application experience that REA can deliver to the 12 million Australians who visit realestate.com.au each month.”
Should investors look at the REA Group share price?
REA Group is performing well, which is why the share price has risen by 66% over the last 12 months.
The property market is booming and REA Group is able to take a small slice of almost every sale thanks to its integral service of advertising properties with a variety of tools.
However, the REA Group share price now looks stretched to me. CommSec puts REA Group shares at 67 times the estimated earnings for 2021. It’s a great business, but I don’t think the current profit growth justifies that high of an earnings multiple.
