Why did UBS just downgrade the Domain (ASX:DHG) share price to neutral?

Leading experts have weighed in with their opinion on the outlook for Domain investors.

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Shares in real estate media giant Domain Holdings Australia Ltd (ASX: DHG) are sliding deep into the red today, and are currently trading 5.86% lower at $5.62.

Domain shares are on the down despite there being no market-sensitive information out of its corner for a while now.

Although, when zooming out and scoping out a wider time frame, the Domain share price has climbed over 23% in the last 3 months.

Analysts at investment bank UBS aren’t so rosy on the company’s outlook, which it feels may bode in poorly for Domain’s share price.

Read on to find out what the broker has to say on its outlook for Domain investors.

What’s up with Domain shares lately?

Domain shares have been gaining serious field position ever since the release of its FY21 results back in August.

There the company recognised a 21% gain in EBITDA to $102 million which carried through to a 66% jump in net profit to $38 million.

From there the Domain share price rallied to a high of $5.78 in late September, after some market turbulence, as well as after it announced the acquisition of Insight Data Solutions.

Aside from this, investors appear to be piling into ASX real estate shares this past month, with the S&P/ASX 200 Real Estate index (XRE) climbing 7.3% off its low in mid-October.

These strengths are shared with growth in the broad Australian property sector. For instance, new home sales in Australia have increased by 12% per month on average since April this year.

Some experts even think a corresponding boost in home building will flow through to the second half of 2022. This could bode in well for Domain’s share price, as more properties will be available for listing on its websites.

However, not all those covering the real estate marketing and media company are as positive on the outlook for investors into the near future.

Why did UBS downgrade the Domain share price?

Analysts at UBS don’t appear to have as an encouraging outlook on the housing market in Australia, amid uncertainties from the impact of COVID-19 lockdowns in Melbourne and Sydney.

The broker reckons it is difficult to accurately forecast the impact of these lockdowns on real estate listing volumes in Australia.

Moreover, UBS finds it equally as challenging to gauge the market’s reaction to government policy in rolling back the restrictions, further clouding its forward estimates.

In fact, the broker reckons that real estate listing volumes won’t return to pre-pandemic levels until FY23 for Domain.

However, it does acknowledge that this could all change if planned reforms to stamp duty turn out to be a positive catalyst for the sector.

For reference, the proposed changes would see the tax of stamp duty replaced with a property tax based on unimproved land value (ULV).

Even though the broker remains cautious by replacing its buy rating with a neutral recommendation on Domain’s shares, it has still upgraded its price target by 1.8% to $5.80.

Domain share price snapshot

The Domain share price has spent the entire year to date in the green, having climbed 25% in that time.

This extends its gain over the last 12 months to 28.5%, a step ahead of the S&P/ASX 200 index (ASX: XJO)’s return of around 20% in that time.

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The author Zach Bristow has no positions 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 no position in any of the stocks mentioned. 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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