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Business SummaryREA Group Ltd (REA) is a multinational digital advertising businessspecialising in property. REA Group operates residential and commercialproperty websites, realestate.com.au and realcommercial.com.au, Europeansites casa.it, atHome.lu and immoRegion.fr. as well as Chinese property sitemyfun.com. REA Group also has a shareholding in US based Move, Inc. andASX listed iProperty Group Ltd (ASX:IPP) which operates a number ofproperty portals in Asia.
Australia: REA operates Australia's residential and commercial propertysites, realestate.com.au and realcommercial.com.au, as well as REA Mediawhich serves the property development and display media markets throughits media and developer businesses.
Asia: The Groups Asian operations comprise iProperty, which operatesproperty portals across Malaysia12 and Indonesia13, and prominent portalsin Hong Kong, Thailand and Singapore, as well as Chinese site, myfun.com.Additionally the Group holds a strategic investment in PropTiger, whichoperates in India.
North America: REA Group invested in Move, Inc. - a digital real estateadvertising business in the US. They acquired a 20% holding for aconsideration of USD 198.7m. News Corp holds the remaining 80% of Move,Inc.
Disposal: On 20 December 2016, the Group divested the Europeanoperations, which included the wholly owned subsidiaries, atHome GroupS.#.l. and REA Italia S.r.l., via the sale of shares.
Latest ResearchAlert: 3Q18 beat on higher revenues, guidance upgraded
A solid revenue-driven beat in 3Q18 with a modest upgrade to FY18guidance. The outperformance is particularly impressive given the timing ofEaster was a headwind for March listing volumes. We recorded 31%growth in REA’s Premiere ad volumes
in March and 41% in April, and we expect that revenue growth trends in 4Qwill accelerate further. In our view May & June volumes will provide animportant guide to whether the elevated growth seen in April is sustainableor just a one-off impacted by Easter.
For more information see research 14 May 2018.
GICS - Software/Services
REA Group Ltd
ASX Code: REA Price: $90.24 12 Mth Target Price: $90.00 Rating: Buy
Important Disclaimer - This may affect your legal rights: Because this document has been prepared without consideration of any specific client's financial situation, particular needs and investmentobjectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement withBell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell PotterSecurities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate.Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document.This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. This is generalinvestment advice only and does not constitute advice to any person.Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in thiscommission. Bell Potter Securities and its associates may hold shares in the companies recommended.
Snapshot
DateMarket Cap.Shares on issue12 Month High12 Month Low
13 June 2018$11,886m131.7m$91.49$62.00
RatingRating12 Mth Target Price
Capital GainGross Yield
Implied Total Return
Buy$90.00-0.3%2.0%1.7%
Investment FundamentalsFYE 30 Jun 2017A 2018F 2019F 2020F
Profit $m 228.0 283.0 348.0 410.0Profit (norm)* $m 228.0 283.0 348.0 410.0
EPS* ¢ 173.0 215.0 264.0 312.0EPS Growth % 6.1 24.3 22.8 18.2P/E* x 52.2 42.0 34.2 28.9P/E Relative % 0.0 0.0 0.0 0.0
DPS ¢ 91.0 98.0 127.0 150.0Yield % 1.0 1.1 1.4 1.7Franking % 100.0 100.0 100.0 100.0* Adjusted for goodwill and unusual itemsSource: Based on Citi estimates
Share Price Chart
Total Return on $10,000 Investment
Profit & Loss ($M)2013A 2014A 2015A 2016A 2017A
Sales Revenue 336 437 523 630 671Total Revenue ex. Int. 337 437 554 671 671EBITDA 164 225 310 333 380Depreciation & Amort. -19 -21 -27 -35 -38Goodwill Amortisation -- -- -- -- --EBIT 145 204 283 299 342Net Interest 9 9 3 -6 -6Profit Before Tax 155 213 287 292 336Income Tax -45 -63 -86 -91 -103Outside Equity Int. -0 -0 -0 -0 -0Profit after Tax 110 150 210 200 391Significant Items after Tax -- -- -- 53 -185Reported Profit after Tax 110 150 210 253 206Preferred Dividends -- -- -- -- --
Cash Flow ($M)2013A 2014A 2015A 2016A 2017A
Receipts from Customers 366 478 567 645 764Funds from Operations 173 230 279 328 405Net Operating Cashflow 145 184 191 221 297Capex -22 -26 -42 -40 -54Acquisitions & Investments -- -98 -349 -529 -74Sale of Invest. & Subsid. -- -- 112 -- 182Net Investing Cashflow -22 -125 -279 -569 54Proceeds from Issues -- -- -- -- --Dividends Paid -48 -63 -85 -101 -113Net Financing Cashflow -48 -63 -87 395 -118Net Increase Cash 75 -4 -175 48 232Cash at Beginning 182 257 254 79 127Exchange Rate Adjust. 0 0 0 0 -0Cash at End 257 254 79 127 358
Ratios and Substantial Shareholders2013A 2014A 2015A 2016A 2017A
Profitability RatiosEBITDA Margin % 48.72 51.46 59.29 52.95 56.55EBIT Margin % 43.17 46.61 54.13 47.41 50.92Net Profit Margin % 32.61 34.23 38.30 31.81 34.72Return on Equity % 34.88 36.71 35.92 28.01 28.97Return on Assets % 27.82 28.90 29.93 13.91 15.18
Debt/Safety RatiosNet Debt/Equity % -81.73 -62.16 -14.14 51.61 16.71Interest Cover x -15.71 -21.93 -81.98 46.12 60.04
Top 5 Substantial ShareholdersNews Limited (News Corp Australia) 61.6%Pinnacle Investment Management Group Limited 6.2%Hyperion Asset Management Limited 6.1%
Balance Sheet ($M)2013A 2014A 2015A 2016A 2017A
Cash & Equivalent 257 254 79 127 358Receivables 53 63 74 91 94Inventories -- -- -- -- --Other Current Assets 2 4 5 5 5Current Assets 311 320 159 223 458Prop. Plant & Equipment 8 9 17 16 20Intangibles 71 95 107 955 753Other Non-Current Assets 2 4 5 5 6Non-Current Assets 83 199 511 1,260 1,121Total Assets 395 519 670 1,483 1,579Interest Bearing Debt -- -- -- 496 493Other Liabilities 80 110 112 271 281Total Liabilities 80 110 112 768 774Net Assets 315 408 558 716 805Share Capital 102 102 98 97 95Reserves -9 -2 26 33 36Retained Earnings 221 308 433 585 673Outside Equity Int. 0 0 1 1 0Total Shareholders Equity 315 408 558 716 805
Current Analyst Recommendations *
* Source: Morningstar. This chart shows the spread of recommendations from thosebroker analyst's in Australia with research coverage of this stock.
Principals & DirectorsPrincipals
Company Secretary Ms Sarah Luise Turner
Directors
Mr Ryan O'Hara(Non-Executive Director)Mr Michael Bruce Miller(Non-Executive Director)Ms Kathleen Marie Conlon(Non-Executive Director)Mr Roger Michael Amos(Non-Executive Director)Mr Richard John Freudenstein(Non-Executive Director)Mr Hamish Roy McLennan(Non-Executive Director,Non-ExecutiveChairman)Ms Tracey Fellows(Chief Executive Officer,Executive Director)Mr Nicholas (Nick) John Dowling(Non-Executive Director)
To access further Research or for information regarding our recommendations and ratings please seewww.bellpotter.com.au
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REA Group Ltd
Bell Potter Securities Research
AFS Licence No. 243480 ABN 25 006 390 772
Email [email protected]
Website www.bellpotter.com.au