This report is the updated version of the report uploaded on 30 March 2023 at 09:20 PM GMT +11

REA Group Ltd

REA Details

REA Group Ltd (ASX: REA) is the multinational digital advertising business specialising in property.

Financial Results

• The company reported results for the half-year ended 31 December 2022. It witnessed YoY revenue growth of 5% to AUD617 Mn, fall in EBITDA excluding associates of 2% to AUD359 Mn as well as a 9% fall in net profit to AUD205 Mn.
• Australian core operating costs rose 7%, because of increased employee costs from the wage inflation as well as deployments for the delivery of strategic initiatives, and higher marketing and travel costs.
• The Board determined to pay the final dividend of 75.0 cps (fully franked).

Key Updates

REA notified that discussions with CoStar Group, Inc. have ceased with regards to the potential sale of Move, Inc., operator of Realtor.com.

Outlook

Notably, residential buy yield growth is expected to grow double-digit in FY 2023, because of an average national 6% price rise, contribution from Premiere+ as well as continued growth in depth and Premiere penetration. REA is expecting combined contributions from associates to decline to the mid-teens loss in FY 2023 because of challenging market conditions.

Key Risks

REA is exposed to risks related to weak market conditions, global economic slowdown, etc. Also, competitive risk as well as operational risk are some other risks it is exposed to.

Fundamental Valuation

Price/EPS Multiple Based Valuation

Stock Recommendation

The stock has been valued using P/E multiple-based illustrative relative valuation and the target price so arrived reflects a decline of low double-digit (in % terms). A slight discount has been applied to P/E Multiple (NTM) (Peer Average) considering higher competition, geopolitical risks, regulatory risks, etc.  

Considering the risks associated with the business as mentioned above, it is prudent to liquidate the stock at the current levels.

Hence, a ‘Sell’ rating has been provided on the stock at the closing price of $137.72 per share as on 30^th March 2023.

Technical Overview:

Daily Price Chart

REA Daily Technical Chart, Data Source: REFINITIV

Markets are trading in a highly volatile zone currently due to certain macroeconomic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for share price chart is based on 30 March 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Disclaimer

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