Company Reports

We expect REA Group’s near-term challenges to center around navigating significant volatility in the Australian housing market. After the onset of the covid-19 pandemic, REA Group received a substantial boost to revenue and profit margins from the booming housing market. We estimate that residential transactions were around a third above trend levels during fiscal 2021 and 2022. With the normalization of interest rates, we expect continuing swings in listings but an eventual return to trend, which started in fiscal 2023.

We lower our fair value estimate for wide-moat REA Group by 2% to AUD 123 per share following the company’s announcement that it does not intend to make a further offer for Rightmove, a United Kingdom-based marketplace for property, at this time. We now ascribe zero probability of the transaction taking place from 25% previously. The decrease in our fair value estimate comes from our view that the acquisition could have been around AUD 10 dollars value-accretive. REA Group’s management cites a lack of substantive engagement by Rightmove’s board, as well as REA Group’s adherence to a disciplined mergers and acquisition framework, as reasons for not further pursuing the acquisition.

We expect REA Group’s near-term challenges to center around navigating significant volatility in the Australian housing market. After the onset of the covid-19 pandemic, REA Group received a substantial boost to revenue and profit margins from the booming housing market. We estimate that residential transactions were around a third above trend levels during fiscal 2021 and 2022. With the normalization of interest rates, we expect continuing swings in listings but an eventual return to trend, which started in fiscal 2023.

We raise our fair value estimate for wide-moat REA Group by 4% to AUD 126 per share following an update on the proposed acquisition of Rightmove, a United Kingdom-based online marketplace for property. Our upgrade consists, in around equal parts, of a 25% probability of the acquisition taking place and the time value of money.

Our fair value estimate for wide-moat REA Group remains unchanged at AUD 121 per share following an update from the company that it made a nonindicative proposal to the board of directors of Rightmove, an online marketplace for property listings in the UK, on Sept. 5, 2024.

Our fair value estimate for wide-moat REA Group is unchanged following an update from the company that it is exploring acquiring Rightmove, a United Kingdom-based online marketplace for property listings. REA Group has not yet made an offer for the business nor approached it for a potential offer.

We raise our fair value estimate for wide-moat REA Group by 3% to AUD 121 per share following the release of fiscal 2024 results. The company had a strong year, as expected, due to a bumper year in its Australian residential segment and decreasing losses in its India segment. At current prices, REA Group shares continue to screen as materially overvalued.

We expect REA Group’s near-term challenges to center around navigating significant volatility in the Australian housing market. After the onset of the covid-19 pandemic, REA Group received a substantial boost to revenue and profit margins from the booming housing market. We estimate that residential transactions were around a third above trend levels during fiscal 2021 and 2022. With the normalization of interest rates, we expect continuing swings in listings but an eventual return to trend, which started in fiscal 2023.

We raise our fair value estimate for wide-moat REA Group by 4% to AUD 117 per share, from AUD 112.50 per share, following its third-quarter trading update. Australia is performing in line with our expectations as REA Group continues to track for a bumper year. However, India's results were stronger than we expected, contributing to our upgrade. At current prices, REA Group shares continue to screen as materially overvalued. We accept that the company has exceptionally strong pricing power in Australia, in keeping with its wide moat rating. However, we believe listing prices are strongly linked to property prices over the long run and don’t expect property prices to grow by double digits every year, as the market seems to imply.

We expect REA Group’s near-term challenges to center around navigating significant volatility in the Australian housing market. After the onset of the covid-19 pandemic, REA Group received a substantial boost to revenue and profit margins from the booming housing market. We estimate that residential transactions were around a third above trend levels during fiscal 2021 and 2022. With the normalization of interest rates, we expect an eventual return to trend, which has started in fiscal 2023.

We increase our fair value estimate for wide moat REA Group by 2% to AUD 112.50 following first-half results. Results were broadly in line with our expectations, with Australian residential tracking for a bumper year and REA India continuing to incur heavy losses. Our fair value increase is driven by the time value of money. At current prices, REA shares continue to screen as materially overvalued.

We expect REA Group’s near-term challenges to center around navigating significant volatility in the Australian housing market. After the onset of the COVID-19 pandemic, REA Group received a substantial boost to revenue and profit margins from the booming housing market. We estimate that residential transactions were around a third above trend levels during fiscal 2021 and 2022. With the normalization of interest rates, we expect an eventual return to trend, which has started in fiscal 2023.

We maintain our AUD 109 per share fair value estimate for wide-moat REA Group following its first-quarter results. Similar to narrow-moat Domain, as discussed in our analyst note “Domain Earnings: Domain Appears to be on Track for a Recovery Year,” REA Group looks on track for a bumper year due to recovering listing volumes for Australian property sales. Additionally, based on REA Group’s results, we also see further indication that Domain has been ceding listings market share in Queensland and Western Australia to REA Group, following Domain’s price increases there. However, we currently don’t expect this to permanently affect Domain’s listings market share in these geographies, as Domain can opt to not raise prices there next year, or, if need be, lower them. At current prices, REA Group’s shares screen as overvalued.

We expect REA Group’s near-term challenges to center around navigating significant volatility in the Australian housing market. After the onset of the COVID-19 pandemic, REA Group received a substantial boost to revenue and profit margins from the booming housing market. We estimate that residential transactions were around a third above trend levels during fiscal 2021 and 2022. With the normalization of interest rates, we expect an eventual return to trend, which has started in fiscal 2023.

We expect REA Group to continue to leverage its dominant position in the Australian online real estate listings market to increase revenue and profit margins and expand internationally. REA Group's core Australian listings business is extremely successful and has a significant lead over its main competitor, Nine Entertainment-backed Domain Holdings. For example, REA Group generates around 3 times Domain's revenue, which we attribute mainly to superior pricing power and higher revenue per listing.

We have maintained our earnings estimates and AUD 80 fair value estimate for REA Group following its strong first-half result. As we expected, REA’s earnings are rebounding strongly following the very weak second half of fiscal 2020 and subsequent easing of COVID-19 movement restrictions. Although the lockdown in the state of Victoria impacted the first quarter of fiscal 2021, the rebound in the second quarter was strong. Despite the strong first-half result, we’ve maintained our forecast for a 12% increase in underlying NPAT in fiscal 2021.

We expect REA Group to continue to leverage its dominant position in the Australian online real estate listings market to increase revenue and profit margins and expand internationally. REA Group's core Australian listings business is extremely successful and has a significant lead over its main competitor, Nine Entertainment-backed Domain Holdings. For example, REA Group generates around 3 times Domain's revenue, which we attribute mainly to superior pricing power and higher revenue per listing.

We have maintained our fair value estimate for narrow-moat-rated REA Group at AUD 80 per share following its first-quarter trading update. Although the first-quarter performance was strong, we don’t believe it provided enough evidence to justify materially changing our full-year forecasts. We still expect group revenue to grow by 10% in fiscal 2021, materially higher than the 3% fall in the first quarter. However, subsequent quarters in fiscal 2021 will benefit from the reopening of Victoria, and the second half of the previous fiscal year was heavily impacted by the national lockdown. At the current market price of AUD 128, we continue to believe REA Group is overvalued.

We previously expected narrow-moat REA Group’s earnings to recover in the second half of fiscal 2020 following the 2019 real estate downturn. However, despite a satisfactory first-quarter performance, with revenue up 1% and EBITDA up 8%, new real estate listings collapsed in April and REA’s fourth quarter is likely to be extremely weak. The third-quarter EBITDA figure also benefited from the introduction of the AASB 16 lease accounting standard, which effectively moved rental expenses into depreciation and interest expenses. We have pushed out the expected earnings recovery and cut our near-term earnings forecasts. However, the impact is too small to warrant changing our AUD 80.00 fair value estimate. The share price has already risen by over 40% since its low in late March 2020 and is overvalued at the current market price of AUD 93.83.