Domain (ASX:DHG) share price lower despite key $60m acquisition

This property listings company has just made a key acquisition…

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The Domain Holdings Australia Ltd (ASX: DHG) share price is edging lower on Thursday morning.

At the time of writing, the property listings company’s shares are down 0.5% to $5.23.

Why is the Domain share price edging lower?

The Domain share price is trading lower after it followed the lead of REA Group Limited (ASX: REA) by bolstering its offering with an acquisition.

According to the release, Domain has entered into a binding agreement to acquire Insight Data Solutions (IDS) for $60 million. Management believes this marks another step forward in executing on its marketplace strategy.

However, given that IDS is expected to record revenues of $7 million in FY 2022, some investors may feel Domain has overpaid. This may explain some of the weakness in the Domain share price today.

Why acquire IDS?

The release notes that Domain is on a journey to expand its addressable market beyond agents and consumers to financial institutions and government.

The company believes the acquisition of IDS establishes Domain as a market leading provider of land and property valuation, insights, and analytics services into the government sector. It also notes that it significantly expands the size of the property data solutions pillar of its marketplace strategy.

What is IDS?

IDS is a market leading property data business focused on two key customer segments: government and corporate.

The company’s platform and workflow tools connect many of the key stakeholders in the property ecosystem. This includes the Office of the Valuer General, who is responsible for statutory valuation processes, and the Local Government Authorities (LGAs), which levy rates based on these valuations.

In addition, valuers who perform the statutory valuations and the public whose rates are based on the statutory valuations are connected via the platform.

IDS is anticipated to deliver FY 2022 revenue of $7 million before the impact of any operating synergies. However, over the next five years, if IDS executes on identified growth opportunities, Domain sees the possibility of a greater than four-fold increase in total revenue in FY 2026. That would be revenue of at least $28 million.

Domain’s CEO, Jason Pellegrino, commented: “We are pleased to welcome IDS to the Domain Group. IDS brings rich experience in building property data platforms and delivery services to support the workflow requirements of Governments, particularly in regards to land valuations.”

“Federal, State and Local Governments will always play a central role in Australia’s property ecosystem. IDS’ platforms, workflow tools and property analytics allow Governments to make more timely, accurate and nuanced decisions regarding land valuations, land use, tax policy and revenues.”

“The importance of these services is likely to amplify as Governments deal with increasing land scarcity, the challenges of housing affordability and planning policy, increased infrastructure investment and the transition of revenue from transfer duties to annual levies based on land valuation,” he concluded.

The Domain share price is up 15% in 2021.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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