REA Share Price Hit by Housing Downturn, Profit Falls 98%

REA Group Limited’s [ASX:REA] share price has taken a hit following the release of their half year results. At the beginning of trade this morning the property group was down 4.07%, or $3.18, to trade at $74.77.

REA provides property and property-related services on websites and mobile apps across Australia and Asia. The company provides digital tools, information and data for people interested in property.

Property slowdown spells poor profits

REA, who owns property listing website realestate.com, revealed listings in Australia were down 3% overall with Sydney driving the overall decline.

The company speculates that cause for the decline has been due to federal and state government elections having buyers hold off pending their results.

The NSW election is scheduled for 23 March and the federal election must be held by May.

Financial results were mixed. REA Group said despite the fall in listing, Australian revenue still rose 16% and EBITDA 18% in FY19.

While revenue also rose across their Asia and financial services business, bringing total group revenue to $469 million, up 15%, net profit delivered a measly $2.5 million, down 98% from the previous corresponding period.

However, revenue would have been up 20% from the last period if it were not for a $173.2 million impairment charge.

The impairment charge came about because of changes in the macroeconomic environment in the group’s Asian businesses, which have resulted in more challenging conditions in some markets according to REA.

Owen Wilson, REA Group CEO, said the company will not be dissuaded from totals results…

The long-term growth potential of Asia is very clear, and we will continue to invest to maintain and strengthen our leadership position while these markets mature.

Our focus is on having the best talent in the region, improving our audience lead, and continuing to create innovative products and experiences for our customers and consumers.’

For income investors, today’s result will be somewhat pleasing as the company boosted its dividend per share to 55 cents, up 17% from 47 cents.

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How will the housing market affect REA Group in 2019?

With the Banking Royal Commission now concluded and recommendations handed down, the course Australian houses take this year will — in part — be up to the banks.

According to Deloitte Access Economics, banks that flipped from lending too much to lending too little were to blame for current housing price declines.

REA Share Price

Source: Australian Financial Review

According to the Australian Financial Review, house prices are expected to correct by 10–20% over the coming year.While the downturn in the housing market might spell good news to some new prospective homebuyers, it is unlikely to be favourable to REA.

The royal commission has forced banks to ration credit to protect against irrational regulators and because of the higher probability of a Labor victory at the next election.

A Labor victory could have the most adverse impact on house prices and we will likely see less listings on sites like realestate.com as homeowners and investors wait for more favourable conditions.

Despite the headwinds REA Group is currently facing, it has actually performed remarkably well.

Over 1H FY 19 it has grown and engaged its online audience, recording 73.4 million average monthly visits across its platform.

It has also seen significant growth within its Asia business, which will help to reduce its exposure to Australia’s slowing housing market.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is one of Money Morning’s junior analysts. Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects. Ryan’s primary focus is assisting Sam Volkering with background research and insight for readers by dissecting the latest events affecting the world. Working closely with Sam, they explore the latest in small-cap and technology stocks as well as cryptocurrency opportunities. You can find Ryan’s contributing research, developments, and supporting information across several e-letters, including:


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