The property market has been performing very strongly. Does that make the current REA Group Limited (ASX: REA) share price a buy right now?
About REA Group
There are a lot of different parts to the REA Group business.
It's a multinational digital advertising business that operates many property sites including the country's leading residential and commercial property websites – realestate.com.au and realcommercial.com.au.
It also owns the country's leading website dedicated to share property, Flatmates.com.au and Spacely which is a short-term commercial and co-working property website.
REA Group also has a growing exposure to mortgage broking. It owns Smartline Home Loans and is currently going through the process of acquiring Mortgage Choice Limited (ASX: MOC). Another business that it owns is PropTrack, a major provider of property data services.
The final segment is a diverse array of international property website stakes. In Asia, REA Group owns leading portals in Malaysia (iProperty.com.my) and Hong Kong (squarefoot.com.hk), a sizeable portfolio in China (myfun.com) and a leading property review site in Thailand called thinkofliving.com.
In India, REA Group holds a controlling interest in Elara Technologies, which owns the brands of Housing.com, Makaan.com and PropTiger.com.
REA Group also holds a significant shareholding in property websites realtor.com in the US, 99.co and iproperty.com.sg in Singapore and rumah123.com in Indonesia.
How is the business performing at the moment?
REA Group releases its performance number to investors each quarter, so there's good visibility of its earnings and operating conditions.
In the three months to 31 March 2021, excluding acquisitions revenue after broker commissions went up 8% to $225.6 million. Still excluding acquisitions, earnings before interest, tax, depreciation and amortisation (EBITDA) excluding profit and losses from associates was up 8% to $121.9 million and including those associates EBITDA was up 13% to $123.3 million.
The quarterly free cash flow rose by 5% to $65.4 million excluding acquisitions.
National listing volumes in the third quarter of FY21 were up 8%, with Sydney listings up 5% and Melbourne listings up 13%.
The business is now cycling against the worst of the COVID-19 lockdown period and the property market is also booming. In April, REA Group was seeing increased levels of buyer enquiry underpinned by low interest rates, improving consumer confidence and healthy bank liquidity.
National residential listings were up 98% year on year, with an increase of 127% in Melbourne and 116% in Sydney.
The group continues to target full year positive operating jaws, excluding the impact of acquisitions. Core operating costs for FY21 are expected to increase marginally on FY20 as revenue-related variable costs are higher than previously expected, according to the company.
REA Group CEO Owen Wilson said:
Conditions are aligned for the Australian property market to continue its positive trajectory for the remainder of 2021. This momentum, combined with strategic investments made throughout FY21, positions REA for a strong finish to the year.
Is the REA Group share price?
Some brokers are positive on the business' trajectory with the strengthening property market, though less excited about the valuation. Credit Suisse is expecting residential volumes to go up 20% in the second half of the year. However, it rates REA Group as a hold/neutral with a price target of $148.
There's a buy rating from Morgan Stanley with a price target of $175 which is one of the few brokers that thinks REA Group is a buy right now.
