Domain Holdings Australia: Getting some more Insight
About the author:
- Author name:
- By Anthony Porto
- Job title:
- Former Senior Analyst
- Date posted:
- 18 October 2021, 10:30 AM
- Sectors Covered:
- Online, Emerging Tech
- We incorporate the acquisition of Insight Data Solutions (IDS) into our forecasts and valuation following completion of the deal.
- Given the rebound in current listings volumes apparent in both Sydney and Melbourne, we also take the opportunity to increase our 1H’22 listings volume growth assumptions for DHG.
- Post a period of general relative audience share decline vs REA, DHG has seen a marked pickup in Aug/Sept. Whilst likely due to the company’s exposure from ‘The Block’, this is a welcome reprieve from proportional share loss seen since the start of the pandemic.
- Incorporation of IDS and some other minor model changes have seen us increase our DCF based valuation and target price to (login to view). Whilst we see current industry conditions as supportive of continued strong growth for DHG, valuation keeps us on a Hold rating.
Broadens marketplace strategy offering with data play
DHG has acquired leading property data and valuations business IDS for an upfront consideration of $60m (8.6x FY22F revenue multiple) and potential earnouts to see consideration grow to $140m on expected performance (max $159m total consideration for outperformance).
IDS is expected to generate $7m revenue in FY22 (~2% increase to group) but is expected to have a growth profile vastly superior to the wider group, with FY26 aspirations of >4x FY22 revenue.
Whilst relatively small in the context of the wider group, the acquisition fits nicely with DHG’s marketplace strategy and the data play likely benefits other aspects of the business (ag Agent and Consumer services).
Listings environment in 1H’22 slightly more supportive than envisaged
Both Sydney and Melbourne have been less impacted by lockdowns than envisaged, with national new listings currently ~25% ahead of pcp (4 week average from Corelogic) we take the opportunity to slightly increase our FY22 residential forecasts.
After a period of declining relative audience share to #1 player REA, DHG has seen a large pickup in site visits over the past 2 months (was running around ~40% of REA visits to be above 50% in September).
Whilst this metric can move around, Domain is obviously benefitting from some increased near term exposure, with the hope that this becomes more enduring.
Forecast and valuation update
Incorporation of the IDS acquisition, an increase in FY22 residential earnings and some minor changes to the margin profile sees EPS +12%, +2% and +4% in the period FY22-24.
Our DCF derived valuation increases 4.4% to (login to view) from incorporation of the IDS acquisition and minor increases to our longer term margin profile.
We are supportive of the ‘marketplace strategy’ DHG is employing to significantly increase their TAM, providing a wider array of services to the property industry. Whilst small, IDS fits neatly into this strategy.
We see DHG as likely to remain acquisitive, with a still relatively healthy balance sheet (ND/FY22 EBITDA 1.2x) but would see any larger deals involving an equity component.
We believe DHG’s strong near term growth profile is adequately captured in the current share price (~68x FY22 PE) and retain the Hold rating.
Likely to see a trading update at the AGM scheduled for 4th November.
Further M&A that supports the ‘marketplace strategy’.
Housing related shocks or market cooling, inability to maintain strong challenger position, lower ROI on investment profile.
Upside risks include yield increases ahead of expectations, more widespread property tax reform than envisaged, strategic M&A.
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