Is Domain Holdings Australia Ltd entering the buy zone?

It’s been an action-packed first few months on the Australian Securities Exchange for Domain Holdings Australia Ltd (ASX: DHG) which commenced trading in November 2017 at $3.80 with a market capitalisation of close to $2.2 billion. 

Domain Holdings is a real estate classified and service business that broke away from multi-platform media group Fairfax Media Limited (ASX: FXJ). 

Before the spin off, US investment company TPG Capital and US private equity company Hellman and Friedman made takeover bids for Fairfax to include the Domain business. The bids were at $2.76 billion and $2.78 billion respectively, but both retreated after viewing the books. 

TPG reportedly walked away because of too much hype about Domain’s future value and its movements as a spin-off have so far been conservative.

Domain has kept its head well above an analyst price forecast of $2.60 last November; a low it hasn’t come close to since the shock resignation of its high-profile CEO in January, which saw a slump down to $2.75. 

Domain opened today just above $3, a slip of almost 2% as the S&P/ASX 200 followed Wall Street deep into the red after the Dow Jones fell more points in a single session than it has since the GFC. 

Before the spin off last year analysts valued Domain’s operations as worth $2.3 billion, with significant growth potential, something the property listings business might be able to tap into with the freedom the demerger has given it to focus wholly on its own needs. 

Even Domain’s current share price of upwards of $3 implies an equity value greater than analysts’ forecasts and with a global search for a new CEO underway, shareholders may feel another surge of confidence in the near future as fresh management takes the helm. 

If the trajectory of multinational digital advertising business REA Group Limited (ASX: REA) is anything to go by in terms of a comparable peer, Domain might be in the running for real success in the boom or bust property portal arena. 

REA Group’s share price is up above $70 with a market cap sitting pretty at $9.69 billion and favourable analyst forecasts for the future. 

All eyes are on Domain as it works to prove itself and emulate its REA Group peer, steering clear of the issues that have plagued McGrath Ltd (ASX: MEA) the best it can. 

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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