Is the REA Group Limited (ASX: REA) share price a buy with the ongoing coronavirus situation?
The REA Group share price dropped around 15% over last week and yesterday, but this morning it's up almost 2% with the market recovering today.
Yesterday's CoreLogic numbers were pretty impressive considering all of the negative news that was flying around last month.
Nationally, in February house prices grew by another 1.1%. Sydney house prices went up 1.7% and Melbourne house prices grew 1.2%.
Over the month, the house prices of Hobart, Canberra and Brisbane went up 0.8%, 0.8% and 0.6% respectively. Perth and Adelaide house prices also grew by 0.3% and 0.1% respectively. The only city to register a decline was Darwin, which dropped a further 1.4% in a single month.
Higher house prices means that REA Group can justifiably charge a higher advertising price, even if it's just maintaining the same advertisement cost to house price ratio. Arguably, digital advertising will become even more important over time.
What about the most recent result?
REA Group's core operations did fairly well in the half-year result to 31 December 2019, considering national residential listings declined 14%, which included listing declines of 17% in Sydney and 16% in Melbourne. In addition, new project commencements declined 30% over the half-year period.
Core operations revenue dropped 6% to $440.3 million and operating expenses dropped 4% to $168.2 million. The earnings before interest, tax, depreciation and amortisation (EBITDA) fell 7% and net profit declined 13% to $152.9 million.
Is it a buy?
Before the coronavirus there were expectations that the number of listings would rise in this half of FY20 with prices rising. We'll have to see if there is a change in seller intentions. REA Group continues to be the superior business compared to Domain Holdings Australia Ltd (ASX: DHG).
The drop in share price definitely makes REA Group more attractive than a couple of weeks ago. It's currently trading at 35x FY21's estimated earnings. It certainly isn't cheap, but it looks a bit better today. There may be a better price in the coming weeks if there's more coronavirus concerns, we just don't know what will happen with central banks now stepping in.
