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REA Group share price on watch after robust FY 2020 result

property house

The REA Group Limited (ASX: REA) share price will be one to watch this morning following the release of its results for the 12 months ended 30 June 2020.

How did REA Group perform in FY 2020?

In FY 2020 REA Group was presented with challenging market conditions and unprecedented global uncertainty because of the pandemic.

Its first half performance was impacted by significant declines in residential listings and new project commencements. This was driven by a restrictive lending environment following the Royal Commission. Whereas the second half was of course impacted by lockdowns, social distancing, and economic uncertainty caused by the coronavirus pandemic. This ultimately led to national listing volumes falling 12% in FY 2020.

Despite this, REA Group handed in a robust set of numbers this morning. For the 12 months ended 30 June 2020, the property listings company reported revenue of $820.3 million. This was a decline of just 6% on the prior corresponding period.

And thanks partly to a 9% reduction in operating expenses to $328.2 million, REA Group’s earnings before interest, tax, depreciation, and amortisation (EBITDA) fell just 5% to $492.1 million. The latter compares favourably to the analyst consensus estimate of $468 million for FY 2020.

On the bottom line, REA Group posted a 9% decline in net profit after tax to $268.9 million and earnings per share of 204.1 cents.

At the end of the period the company had a strong balance sheet, with low debt levels and a cash balance of $223 million.

This balance sheet strength allowed the REA Group board to declare a full year dividend of 110 cents per share, down 7% on FY 2019’s dividend.

Management commentary.

REA Group’s CEO, Owen Wilson, was very pleased with the way the company performed during a difficult 12 months.

He commented: “I am proud of the way REA has responded to the COVID-19 crisis, quickly adapting our products and experiences to enable Australians to continue to find, buy and sell property. In these challenging conditions, our products and services are playing an increasingly vital role in supporting our customers and vendors.”

“Pleasingly, our flagship site extended its leadership position in FY20. Each month, 60% of Australia’s adult population is visiting our site, with a new record of almost 12 million people in May,” said Mr Wilson.

FY 2021 outlook.

Management notes that the pandemic continues to create widespread market volatility. In light of this and the economic uncertainty, it advised that it is difficult to predict market outcomes.

However, FY 2021 started positively. In July, national residential listings were up 16% with Sydney up 47% and Melbourne up 13%. Management notes that the magnitude of the listings increases reflect the weak comparatives in July 2019.

Furthermore, despite the effects of COVID-19, it saw strong levels of buyer enquiry in July underpinned by low interest rates and healthy bank liquidity.

Though, it acknowledges that it will be a different story in Melbourne in August because of lockdowns. And combined with listing volume declines in the Commercial and Asia businesses, it expects to see an adverse impact on its first quarter revenue.

In addition to this, the company revealed that it has deferred price increases that were due to commence on 1 July. Once conditions improve sufficiently, it will consider implementing these increases. In the meantime, it hopes to offset this somewhat by keeping its core operating costs at least flat for the full year.

Mr Wilson concluded: “The property market has shown great resilience, bouncing back from the lows of COVID-19, however, the extent of this recovery is still dependent on the efforts to contain the virus and the outlook for the underlying economy. We have a strong balance sheet, a talented workforce and a loyal audience which will see us emerge an even stronger business once more normal conditions return.”

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Motley Fool contributor James Mickleboro 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 Scott Phillips.

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