The Domain share price is rising as property prices sink

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This morning Domain Holdings Australia Ltd (ASX: DHG) reported its half-year results for the period ending December 31 2018. Below is a summary of the results with comparisons to the prior corresponding half.

  • Revenue of $183.9 million, up 0.3%
  • Net profit of $21.1 million, down 14%
  • EBITDA (operating income) of $52.7 million, down 7.1%
  • EBIT of $38.4 million, down 12%
  • $178.8 million non-cash impairment charge recognised on carrying value of business due to lower growth assumptions
  • Earnings per share of 3.64 cents, down 15.1%
  • Dividend of 2 cents per share
  • Net debt stands at $121 million

Domain's new chief executive Jason Pellegrino claimed this was a solid result in the context of a "challenging" property market, although flat revenue and falling profits is not what early investors in Domain would want.

It's correct that the period saw lower listings to act as something of a headwind, but that did not stop rival REA Group Limited (ASX: REA) from posting double-digit profit growth over the half.

Mr. Pellegrino commented: "Despite lower volumes in the market, yield growth has been achieved in every State. We are selling more premium products to more agents, who recognise the value we are delivering."

The ability to sell more 'premium' listings to agents to promote a property more prominently on websites is also what supported REA Group's result as well – only to a better extent.

This is because when it's harder to sell properties due to a lack of buyers, etc, agents and their vendor clients are more easily persuaded to spend a little more on advertising in an attempt to sell the property.

Outlook

Domain flagged that listing volumes over a seasonally quite period had been lower over the first six weeks of 2019 with total costs over fiscal 2019 expected to increase on a mid-single-digit basis versus fiscal 2018 costs.

The digital player is still majority owned by the newly merged Fairfax and Nine Entertainment Co (ASX: NEC) and is still reliant on the readership reach of the Fairfax mastheads such as The Age or SMH for the top of its funnel in terms of generating traffic to its website. Although, it also has other 'paid for' traffic acquisition sources such as online advertising. However, to some extent its success is still linked to the wider success and management of the Fairfax Nine business.

The stock hit a record low of $2.06 yesterday as it's no secret listing volumes have been down and despite a knocked-down price you can count me out as a buyer of Nine Company or Domain.

Motley Fool contributor Tom Richardson owns shares of REA Group Limited. You can find Tom on Twitter @tommyr345 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 Scott Phillips.

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