Why Morgans is tipping more double-digit gains for REA Group Limited (ASX:REA)

Fresh concerns about the health of our property market aren’t enough to turn Morgans off REA Group Limited (ASX: REA) with the broker forecasting double-digit ad volume growth for our largest online property website in the September quarter.

The share price of REA Group was trading just above breakeven at $86.17 during lunchtime trade with the stock up 28% over the past 12-months. This makes REA Group the best performing large-cap dot-com stock with SEEK Limited (ASX: SEK) sitting on a 27% gain and Carsales.Com Ltd (ASX: CAR) gaining 13% compared to a 9% increase by the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index.

REA Group’s performance is even more impressive given that Australia and New Zealand Banking Group (ASX: ANZ) issued a forecast today for home prices to keep falling through to 2020.

The property market has been sliding over the past year with our key markets Sydney and Melbourne retreating around 5%. ANZ Bank believes the drop will double to 10% from peak to trough and that’s an alarming prediction coming from a bank with a vested interest in (and I would argue bias towards) a buoyant property market.

“Despite slowing residential property market turnover, REA Group continues to experience strong growth in the volume of paid depth ads,” said Morgans.

“Morgans weekly count of depth ad volumes on the company’s flagship site,, has shown solid double-digit growth in the current quarter. Based on these numbers the company appears to be on track to meet market expectations for H1 FY19.”

The broker isn’t bothered by the fact that REA Group is trading on an FY19 forecast price-earnings (P/E) that’s over 30 times.

That’s about double the broader market but Morgans think the premium is justified as it believes REA Group can continue to deliver several more years of doubt-digit growth with strong free cash flow generation.

The broker has an “add” recommendation on the stock with a price target of $95.21. This gives the stock an upside of around 10% if you included the dividend.

However, this bullish call is predicated on ad listing volumes not falling away if the slump in the property market becomes too severe or protracted.

Currently, property developers and agents are stepping up advertising spend to offset falling demand from property buyers. At some point, this group may decide that increased marketing spend can’t be justified.

Support for REA Group will also depend on how well its overseas investments in Asian and US property sites perform and that competitors will act rationally in the face of an increasingly challenging market.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited. The Motley Fool Australia has recommended Limited, REA Group Limited, and SEEK 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 Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!