Why the REA Group (ASX:REA) share price is pushing higher

The REA Group Limited (ASX:REA) share price is pushing higher on Friday following the release of its first half results…

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The REA Group Limited (ASX: REA) share price is pushing higher on Friday following the release of its half year results.

At the time of writing, the property listings company’s shares are up 1.5% to $157.08.

How did REA Group perform in the first half?

REA Group’s earnings returned to growth in the first half of FY 2021 thanks to its excellent cost control offsetting softer revenues.

For the six months ended 31 December, the company reported a 2% decline in revenue to $430.4 million. Operating expenses were reduced by 13% compared to a year earlier to $145.8 million, leading to REA Group reporting a 9% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to $290.2 million.

Management advised that the reduction in expenses was driven by COVID-19 related savings and the deferral of some marketing spend into the second half.

On the bottom line, the company’s net profit after tax increased 13% to $172.1 million or 130.7 cents per share.

This strong profit growth allowed the REA Group board to declare an interim dividend of 59 cents per share, which was up 7% on last year’s payout.

Australian listings return to growth

The Australian residential property market continued its recovery during the first half, with residential listings increasing 4% for the period.

The key driver of this was the Sydney market, which reported a 19% increase in listings. This offset weakness in the Melbourne market caused by COVID-19 lockdown measures.

Pleasingly, despite declining 44% during the first quarter, a rebound in the second quarter led to Melbourne listings falling just 11% for the half.

Things weren’t quite as positive in Asia, with Asia revenue declining by 38% for the half. Management advised that this segment was negatively impacted by renewed COVID-related lockdowns, cancellation of events across all markets, adverse FX movements, and the one-off COVID related reduction in syndicated MyFun listings.

Finally, the company’s 20% investment in US-based Move, Inc contributed positively to its profit result during the half thanks to a 37% increase in unique users to 80 million.

Move’s equity accounted result improved from a $1.5 million loss in the prior year to a $9.4 million profit in the first half.

Management commentary

REA Group’s Chief Executive Officer, Owen Wilson, was very pleased with the first half result considering the lockdowns in Melbourne.

He commented: “We have delivered a remarkable first half result, particularly given the Melbourne market came to a virtual standstill during the lockdown. I am proud of the way our teams focused on the things we could control to deliver outstanding customer support and product enhancements to help consumers navigate the disruptions.”

“Australia’s property market appears to be on the march again, showing signs of a strong recovery in November and December. This was fuelled by the easing of COVID19 restrictions, combined with increasing consumer confidence, record low interest rates and healthy bank liquidity.”

“Our flagship site realestate.com.au delivered a stand-out performance for the half. In November we set a new record of 13 million people, or 65% of Australia’s adult population on our site. Buyer activity also continued to soar with enquiry volumes up 44%, delivering significantly more high-quality leads to our customers,” added Mr Wilson.

Outlook

The company revealed that in January, national residential listings were flat, with an increase in Melbourne of 12% and a decline in Sydney of 1%.

Nevertheless, management advised that it continues to see strong levels of buyer enquiry, underpinned by low interest rates and healthy bank liquidity. It notes that consumer confidence is also improving.

Commercial revenues are expected to remain challenged, with listings pressure anticipated to continue in the second half. REA Group also expects Asia revenues to be negatively impacted for the remainder of FY 2021 given the severe COVID-19 restrictions still in place in Malaysia.

Management is aiming to offset this by prudently manage its cost base, targeting full year positive operating jaws, excluding the impact of acquisitions. However, operating costs will increase in the second half as the benefits of COVID-19 related savings reduce, alongside increases in marketing, staff incentives, and product development.

“The actions we have taken to successfully manage our business through the pandemic have ensured REA Group remains in an excellent financial position. The key indicators are currently pointing to a continued rebound in the property market. This momentum, coupled with our exciting product roadmap, has REA well positioned for 2021,” concluded Mr Wilson.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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