REA beats earnings amid post-lockdown housing rush

REA Group (ASX: REA) had a lot of momentum heading into February reporting season as housing demand remained elevated and lockdown restrictions began to ease in November last year. 

First-half FY22 highlights for REA include: 

• Revenue of $590m, up 37%

• Earnings of $368m, up 27%

• Net profit of $226m, up 31%

• Interim dividend of 75 cents per share, up 27% 

REA shares rallied 4.4% as the market opened.

The results came in ahead of Morgans’ expectations, which expected 30% revenue growth to $560m and earnings of $345m. However, the dividend was 3 cents below the brokers’ forecasts.

Leading into the result, Morgans said a “strong new listings environment post lockdowns easing could be the positive surprise factor in the result.” 

Net profit also topped Citi and Bell Potter expectations of $204m. The brokers held a ‘neutral’ rating on the stock heading into earnings. 

Post-lockdown rush 

“As anticipated, the removal of covid restrictions saw a wave of new listings on realestate.com.au, with sellers making up for the time lost in lockdown and taking advantage of the significant buyer demand,” said CEO Owen Wilson. 

This might come as no surprise after CoreLogic's January chart pack pointed out, "for the four weeks ending 26th of December, new listings added to market reached 31,503. This is the highest level in five years for the equivalent period."

"However, total listings remained -24.7% below the 5-year average due to strong absorption from sales."

Costs on the rise 

REA flagged a 17% rise in core operating costs, underpinned by investments into growth initiatives and higher salaries amid a tight labour market. 

Profit as a percentage of revenue was 38%, down from 40% in the first half of FY21 but well above the 34.3% for the full FY21.

Favourable market conditions but no guidance

REA said that residential property market is off to a positive start this year with national listings up 14% in January.

REA warned that growth rates are expected to slow in the second half as the business cycles through a very strong prior period of listing volumes.

This is broadly in-line with CoreLogic's view of softening growth conditions, influenced by "less government stimulus, worsening affordability, rising fixed term mortgage rates and, more recently, a slight tightening in credit conditions, and a surge in new listings through the final quarter of last year.”