Depth ad volumes keep rising
Despite slowing residential property market turnover, REA Group (REA) continues to experience strong growth in the volume of paid depth ads. Morgans weekly count of depth ad volumes on the company's flagship site (realestate.com.au) has shown solid double-digit growth in the current quarter.
Based on these numbers the company appears to be on track to meet market expectations for H1 FY19.
No change to forecasts, valuation
The quarterly survey data is in line with our forecasts and as such we make no changes to our valuation or share price target (Morgans clients can login to view).
Risks and catalysts
Risks to REA's earnings and share price include:
- steep falls in Australian residential listings volumes, causing a fall in paid depth listings;
- failure of new product initiatives to find widespread acceptance;
- deterioration in the operating performance of Asian and US operations; and
- irrational competitor behaviour.
Potential near-term re-rating catalysts include:
- faster-than-expected growth in depth ad volumes;
- success with new product launches;
- better-than-expected results from Asian and US operations; and
- success in lifting the volume of home loans through the new financial services initiative.
REA offers investors exposure to the growth in online real estate advertising in Australia, Asia and the US. We expect REA to deliver several more years of double-digit earnings growth and show very high levels of free cash generation, enabling strong growth in dividends.
As our share price target implies a total shareholder return of more than 10%, we maintain our Add recommendation.
Morgans clients can login to view our detailed report and increased share price target for REA Group (REA). Alternatively, please contact your nearest Morgans office for access.
Disclaimer(s): Analyst owns shares.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.