REA Group (REA)

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7 August 2020

Results 

Full Year 2020

Full Year 2019

Change

Revenue ($m)

820.3

874.9

-6%

Monthly unique audience (m)

9.8

8.4

+16%

Operating expenses ($m)

(328.2)

(359.6)

-9%

EBITDA ($m)

492.1

515.3

-5%

Net profit from core operations ($m)

268.9

295.5

-9%

Bloomberg Consensus ($m)

262.0

 

 

Final Dividend ($)

0.55

0.63

-12.7%

REA Group (REA) profits held back by coronavirus related lockdowns    

What happened?

  • REA Group (REA) – Australia’s largest property classifieds business – posted a 9% decline in net profit to $268.9m for the year ended 30 June 2020. Despite the softer result, both revenue and net profit were slightly above the expectations of the 11 analysts surveyed by Bloomberg, helping initially push REA shares higher. 
  • REA has declared a $0.55 per share final dividend which will trade ex-dividend on 27 August and will be paid to eligible investors on 17 September. While this matches the size of its interim distribution in March, it is a decline of close to 13% on a year earlier. REA has now paid investors a final dividend for 12 consecutive years. 

Why did it happen?

  • For obvious reasons, REA’s success is intertwined with the state of the Australian property market. Residential listings on its www.realestate.com.au website decreased by 12% over the year and have been impacted by two major events. Firstly, conditions were already weak over the first half of financial year, due to the restrictive lending environment post Royal Commission. In recent months, COVID-19 was a major drag on the organisation. Effects of lockdowns resulted in fewer properties being listed for sale from mid-March through to the end of May. While listings rose by 11% in June thanks to restrictions being eased, Victoria’s decision to reinstate its lockdown and impose curfews will take its toll over the short-term. 
  • While Australia is its core market, REA has also expanded into Asia, including Malaysia, Hong Kong, Thailand and China. Its Asia operations still only account for 6% of group revenues and 2% of EBITDA.
  • To help offset the drop in listings, REA turned its attention to bringing down costs, managing to reduce total expenses by 9% over the year and by 21% in the fourth quarter. 
  • REA has also grabbed more market share from its competitors, saying that 60% of the Australian adult population visited www.realestate.com.au in FY20, with a new record 12 million visitors in May. Media group, News Limited (NWS) owns ~60% of the company and REA is its star performer. Its closest competitor is Domain Group (DHG), which is controlled by Nine Entertainment (NEC).

Where to now?

  • Looking forward, REA expects the ‘…latest COVID-19 restrictions in Melbourne, which ban physical property inspections, are likely to cause significant short-term weakness in listing volumes for the duration of the lockdown. This coupled with the projected reductions in new development project commencements and listing volume declines in Commercial and Asia businesses, is likely to cause adverse impacts on revenue in Q1 FY21.’
  • It is aiming to keep costs as low as possible; anticipating no increase in core costs and only expects to lift prices in FY21 in the event of a sustained residential property market recovery. 
  • In July, national residential listings rose by 16%, driven by a 47% lift in Sydney. Listings grew by a much more modest 13% in Melbourne due to fresh lockdowns. 
  • Relating to its balance sheet, REA has $223m in cash, around $250m in longer-term loans and access to $149m in undrawn debt facilities if necessary. REA is outperforming the broader market (ASX 200) by ~20% so far in the 2020 calendar year. 

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