Strong Earnings Growth Cements REA Group's Position

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Strong Earnings Growth Cements REA Group’s Position

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  • Revenue up 13 percent to $925 million, net profit after tax up 18 percent to $318 million
  • Earnings per share $2.47, an increase of 21 percent, annual dividend $1.31 fully franked
  • Cash flow $321 million, representing 100 percent cash conversion ratio, net debt $245 million
  • Impressive audience metrics with 2.6 million average monthly buyer enquiries

REA Group (‘REA‘ or the ‘Group’) is a  digital advertising business that operates Australia’s leading residential and commercial property websites – realestate.com.au and realcommercial.com.au. The Group reaches over 12.6 million Australians on average each month and receives 2.6 million average monthly buyer enquiries. Realestate.com is now Australia’s 8th largest online brand.

FY21 Financial Result

REA recorded revenue of $925 million, up 13 percent for the year and a net profit after tax of $318 million, an increase of 18 percent. Earnings per share were $2.47 cents, up 21 percent and the full year dividend was $1.31 fully franked, an increase of 19 percent. The final dividend of 72 cents is payable on 16 September. REA is a strong cash flow business with a high cash conversion ratio of just over 100 percent, generating an annual operating cash flow of $321 million. Cash at the end of year was $169 million, leaving the Group with net debt of $245 million.

REA was severely impacted by the Melbourne COVID-19 lockdowns when listings in the first quarter of FY21 were down 41 percent in Melbourne. Post lockdown, Melbourne listings recovered quickly to increase by 11 percent on average for the year, compared to an increase of 15 percent nationally. REA’s audience metrics are impressive with average monthly visits to realestate.com.au topping 121 million, outperforming its closest competitor by 3.3 times on average.

Leveraging Digital Expertise into the Future

COVID-19 has the potential to impact the Group’s FY22 performance.  Listing volumes in July were down by 3 percent nationally, compared to July 2020. Sydney listings in July were down 22 percent, impacted by lockdown. Past trends indicate that listings quickly normalise once lockdown ends.

In March 2021, REA announced its proposal to acquire 100 percent of the shares in Mortgage Choice, which aligns with the group’s financial services strategy and leverages its digital expertise across its growing network. In June 2021 REA acquired a 34 percent interest in Simpology Pty Limited, a leading provider of mortgage application and e-lodgement solutions for the mortgage broking industry.

REA is well positioned to further monetise its dominant engaged consumer base with 765,000   property owners engaging with the Group and the potential to address the 40 percent of the home loan market not currently serviced by a broker. The Group’s strong balance sheet allows for the acquisition of adjacent services or geographic expansion to further leverage its digital expertise.

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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