At the current REA Group Limited (ASX: REA) share price, could it be time to consider the property portal business? It recently reported its FY21 result.
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What does REA Group do?
It's a multinational digital advertising business for property. It operates the leading Australian residential and commercial property websites, realestate.com.au and realcommercial.com.au. It also has a leading website for share property, flatmates.com.au.
But Australian property portals aren't the only thing it does. Other operations include the mortgage broking franchise groups Smartline Home Loans and Mortgage Choice, as well as PropTrack – a leading provider of property data services.
Internationally, it has a controlling interest in Indian business Elara Technologies, which is the operator of Housing.com, Makaan.com and PropTiger.com. It also has leading portals in Hong Kong and China. REA Group has a large minority holding of Move Inc (operator of realtor.com) in the US and PropertyGuru which has property sites in Malaysia, Singapore, Thailand, Vietnam and Indonesia.
REA Group's FY21 result
The business reported its FY21 result last week. It said that revenue was up 13% to $928 million. National listings were up 15% in FY21.
REA Group's earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 19% to $565 million. Net profit went up 18% to $318 million and earnings per share (EPS) grew by 21% to $2.47. Excluding the impact of acquisitions, revenue increased 11% for the year, EBITDA including associates rose 21% and net profit went up 24%.
The company explained that strong cost management across the year resulted in core operating cost growth (excluding acquisitions) being contained to 3% year on year.
REA Group's board decided to increase the full year dividend by 19% to $1.31 per share.
The company explained that Elara and REA Group's Asian division continue to be impacted by COVID-19 effects. However, in FY21 Elara saw audience growth of 92% year on year and local currency revenue growth of 23%.
In America, realtor.com's average monthly unique users for the fourth quarter grew 32% year on year to 106 million. Move's equity accounted result positively contributed to the overall result, improving from a A$7 million loss in the prior year to a A$16 million gain in FY21.
REA Group share price drops
Since 5 August 2021 (the day before REA Group's result), the REA Group share price has fallen around 8%.
REA Group gave an update regarding current trading with its FY21 report. Whilst it said that the Australian residential business will benefit from price increases which came into effect from 1 July 2021, listing volumes in July were down 3% year on year. Melbourne listings were up 3% while Sydney listings were down 22%.
The business continues to target positive full year "operating jaws" while increasing the level of investment to deliver its strategic initiatives.
Is it now good value?
There are a range of views on REA Group.
One view is that REA Group is fairly priced – Credit Suisse currently rates the REA Group share price as neutral with a price target of $152.50. The Sydney lockdown and listings decline is causing uncertainty.
But Morgan Stanley currently rates the REA Group share price as a buy with a price target of $185. The ongoing Sydney lockdown could cause downgrades, but the broker believes a recovery will occur once restrictions are lifted. However, according to Morgan Stanley, the REA Group share price is valued at 40x FY23's estimated earnings.
