Property technology company Pexa Group Ltd (ASX: PXA) recently upgraded its full-year profit outlook and announced it was selling an entire business division, news that sent its shares higher at the time.
But it's what is in the wings that is interesting to the team at Macqaurie, which says new changes to how real estate agents and conveyancers have to treat buyers and sellers will be a tailwind for the company.
More on that later. First, we'll look at what Pexa recently announced.
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Restructure underway
The company said in mid-February that it had decided to sell its majority-owned Digital Solutions business, which would drive about $26 million in net impairments, with the sale expected to be finalised by mid-year.
This decision followed a strategic review of the business.
Pexa Managing Director Russell Cohen said regarding the sale:
Our decision to exit the Digital Solutions businesses reflects our disciplined focus on our core capabilities to drive long-term, profitable growth for our shareholders. While quality assets with strong management teams, the strategic review confirmed that PEXA was not the best long-term natural owner of these businesses. With the strategic review now complete, management is fully focused on accelerating our growth strategy and unlocking value from existing operations and future opportunities.
Pexa said it expected to report significant items of $7 to $8 million in its first-half results, excluding the $26 million previously mentioned, with the costs largely related to redundancies from a cost optimisation program and restructuring.
The cost-out program was expected to save more than $10 million per year.
Pexa also downgraded its full-year revenue outlook to $395 to $415 million, down from $405 to $430 million, but upgraded its core earnings forecast by $10 million to $15 to $25 million.
Pexa shares looking cheap
The Macquarie team recently had a look at Pexa and said changes to how property transactions need to be handled would be good for the business.
They said in a research note to clients that conveyancers and real estate agents would soon have to comply with anti-money laundering and counter-terrorism financing laws, requiring checks on buyers and sellers in property transactions.
They added:
This includes registering with AUSTRAC, completing initial and ongoing client due diligence, and reporting both suspicious transactions promptly and all transactions annually to AUSTRAC.
Macquarie said Pexa had launched a software solution, Pexa Clear, in January, putting it ahead of the game ahead of the new regulations coming into force from July 1.
The Macquarie team estimated the new business would generate about $90 million in revenue for Pexa, and they have a 12-month price target of $19.15 on Pexa shares.
This compares with $14.33 now and would constitute a 33.6% gain if achieved.
Pexa will report its first-half results on Friday, February 27. The company was valued at $2.53 billion at the close of trade on Tuesday.
