The REA Group Limited (ASX: REA) share price could be one of the bigger movers today after it reported its 2019 financial year result.
REA Group is the owner of Australia’s most popular real estate portal, realestate.com.au. It owns other property leading sites such as realcommercial.com.au too. It also has stakes in several other international property sites in the US, South East Asia and India.
What Did REA Group Report In FY19?
REA Group reported that its revenue increased by 8% to $874.9 million. The property portal business attributed the increase to its Australian business thanks to the resilient performance of the ‘Residential’ and ‘Developer’ businesses which faced tough conditions, particularly in the second half.
The Australian housing market experienced “significantly” lower residential listings and new development project commencements in 2019. Total residential listing declined 8% in the year and there were declines of 18% in Sydney and 11% in Melbourne, two cities with some of the highest priced ads.
REA Group said that realestate.com.au still receives 2.9 times more than the nearest competitor and people spent 4.7 times longer on its app compared to the nearest competitor. I’d assume REA Group is referring to Domain Holdings Australia Ltd (ASX: DHG).
REA Group said its core operations / underlying EBITDA (click here to learn what EBITDA means) increased by 8% to $501.2 million. The EBITDA margin was consistent at 57%.
In the US, Move Inc grew revenue by 7% to US$484.1 million, however REA Group’s share of losses increased to $8.4 million because of increased operating costs and the acquisition of OpCity, a technology platform that links buyers and sellers with real estate professionals. But, Move Inc’s average monthly unique users increased by 14% to 72 million in the fourth quarter.
The Asia segment contributed revenue of $48.6 million and EBITDA of $7.4 million excluding the equity accounted results of Elara in India which REA Group owns 13.5% of – Elara grew revenue by 54% in FY19.
However, it was the Asia segment that suffered a $173.2 million impairment charge to goodwill in the first half and Elara took a $15.7 million reduction in the value of its assets due to the deferral of near term returns despite strong revenue growth.
It was this writedown that caused the divergence between core profit and statutory profit. Core net profit after tax (NPAT) increased by 6% to $295.5 million. Whereas reported net profit fell 58% to $105.3 million.
REA Group Dividend
The REA Group Board declared a final dividend of 63 cents per share, bringing the total dividend for FY19 to $1.18 per share. This is an increase of 8% on the last year.
REA Group Management Comments
REA Group CEO Owen Wilson said: “A number of factors are now in place to support a market recovery, including lower interest rates and an improved lending environment. Coupled with a very healthy increase in buyer activity, it signals an eventual recovery of listing volumes.
“The strength of REA’s strategy positions the Group well to continue to deliver superior value to our customers and consumers.”
Is REA Group A Buy?
REA Group is aiming to invest in growth initiatives, planned efficiency gains and strong cost management to reduce the rate of cost growth in FY20, This year the company is targeting revenue to grow faster than expenses, although that won’t be the case every quarter.
REA Group is valued at almost 41x its core net profit, which seems quite expensive for how much growth it generated this year. Revenue and profit growth will need to pick up in FY20.
I’d be happy to have REA Group in my portfolio, but I think it’s likely the market will present a better buying opportunity over the next six months. That’s why I would prefer investing in one of the growth shares in the free report below instead.
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