REA Group Limited (ASX: REA) shares opened down around 3% this morning at $87.82, but have moved 5.3% higher at $96.44 this morning after the group revealed its results for the financial year ending June 30, 2019 this morning.
The operator of the realestate.com.au property portal reported a net profit of $295.5 million on EBITDA of $501.2 million and revenue of $875 million for the year. It declared a final dividend of 63 cents per shares to take full year dividends to $1.18 per share on earning of $2.243 per share (EPS). The dividend and EPS were up 8% and 6% respectively.
At $96.44 the stock is changing hands for 43x FY 2019's EPS which looks high, but investors need to account for the fact it's now cycling off what was a very weak FY 2019 for Australian property listings as the key driver of its sales.
"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," commented REA Group CEO, Owen Wilson, today.
REA Group also boasts EBITDA margins around 57% and a return on equity close to 30%, alongside leverage to property as an asset class that receives a lot of government and monetary support in Australia. This shows how this is highly profitable business if it is able to grow revenues strongly on the back of a listings rebound in FY 20 as the RBA cuts borrowing rates.
It also has a stronger competitive position than rivals like SEEK Limited (ASX: SEK) and Carsales.com Ltd (ASX: CAR) in my opinion, as these businesses face rising competition from the likes of LinkedIn and Facebook's marketplace for example.
REA Group has a net cash position of $137.9 million and despite it being on the expensive side I still expect the shares will be higher this time next year partly as I expect we'll see a strong rebound in property listings.
I also still rate it a better long-term bet than SEEK or Carsales.
