Despite some looming headwinds,
-Integration of Mortgage Choice and REA
-Depth penetration and add-on products key to the outlook in FY22
-Is valuation support for REA waning?
While cautious on valuation, the broker would not be surprised if management upgrades the outlook when operating conditions become clearer after
Morgans highlights the strong revenue growth for Mortgage Choice under
The quarterly result was underpinned by residential listings and the impact of price rises in July. Depth uptake was also better than expected. Listings grew 11% in the first quarter while prices were 8% higher. Cost growth is expected to be in the high single digits, yet Credit Suisse believes this will be more than offset by higher revenue.
Higher depth penetration is key along with add-on products. The company did not provide specific growth rates for each of its divisions but indicted depth growth for residential was well above 20% in the first quarter.
The Premiere product had record take up in the first quarter and, with additional products such as Connect and Ignite, Morgans finds growth has been impressive. Given debt facilities are been refinanced and gearing remains low the broker would not be surprised if further acquisitions were made, either domestically or internationally.
Valuation
Morgans continues to believe REA is one-off the highest quality businesses on the ASX with its dominant market position and enhanced ability to broaden its reach. On the downside, there were some slight reductions to developer revenue and lower associate earnings during the quarter.
Furthermore, the broker considers some of the current strength is simply the pulling forward of listings, which means longer-term upgrades are likely to be more muted.
Despite a positive outlook, Morgans retains a Hold rating on valuation and would look to accumulate the stock below its target (
As a result, valuation support is believed to be waning. The broker retains an Outperform rating and has become slightly more positive about the outlook for listings, although the looming federal election may prove a dampener.
Indeed, management has signalled volume comparables will become tougher in the second half and that the timing of the federal election may also have an impact. Still, Credit Suisse expects listings will be strong in the second quarter at the very least, because of the re-opening of
Morgan Stanley also believes the first quarter result supports its investment thesis, and hails a potential "super cycle" for REA earnings over FY22-23. This should stem from the rebound in
While the company provided no explicit guidance, the broker anticipates, since operating earnings (EBITDA) grew 28% in the first quarter, that growth over the rest of the financial year of 11% is required to achieve full year consolidated EBITDA of
Combining higher yield growth and domestic expenditure assumptions, Goldman Sachs, raises FY22-24 EBITDA estimates by 1-5%. The broker, not one of the seven stockbrokers monitored daily on the FNArena database, has a Buy rating and
FNArena's database has two Buy ratings and four Hold. The consensus target is
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