Having recently announced the $190 million sale of its interests in its European property website portfolio, REA Group Limited (ASX: REA) today revealed a $68 million investment in one of India's leading digital property businesses named PropTiger.
In return for the investment REA Group will gain a 14.7% stake in PropTiger and the right to appoint a director to the company's board. It's also worth noting that News Corp (ASX: NWS) as REA Group's majority owner is also currently the largest shareholder in PropTiger and it will hold an effective 21% stake on completion of REA's investment. PropTiger is also clearly not an emerging market hopeful when you consider it could be valued at around $460 million using what REA Group just paid for its stake in the business as a valuation guide.
Management's strategy to effectively shift some of the proceeds from the European business into the high-growth India business also looks a good move as Europe remains an extremely low-growth environment with plenty of potential economic problems ahead of it. Whereas India's growth rates are moving in the opposite direction, alongside other high-growth South East Asian markets like Singapore, Thailand, Indonesia and Hong Kong where REA Group is now also aggressively moving into via its early 2016 $750 million acquisition of the iProperty Group.
Moreover, as the operator of Australia's dominant property website in realestate.com.au, I expect REA Group has a strong couple of years ahead of it after residential property listings slumped in 2016. It seems inevitable that residential listing volumes will track back to their historical averages over time though and REA Group is positioned to benefit after navigating a difficult past year with relative success.
Management also has an excellent track record, long-term focus, and the support of News Corp, which means I think REA Group is one of the best long-term growth stocks on the ASX alongside the likes of Cochlear Limited (ASX: COH).
Unfortunately it's no secret and at $57.11 the shares are now priced for a strong year ahead on around 31x analysts' estimates for earnings per share in FY 2017. REA Group also faces more risk of being disrupted over time than a business like Cochlear, which is why its current valuation looks a little stretched despite a strong short-term outlook and the high business quality.
