Should you buy REA Group after earnings? Here’s the latest broker views

Results overview:

Key metrics / Highlights

• Group underlying net profit after tax (NPAT) +24% to $461 million vs $372 million previous corresponding period (PCP) on a 23% increase in revenue.

• Listings growth of 7% with Melbourne up 22% and Sydney up 21%

• Double-digit price rises across Residential and Commercial was the main driver of profit growth

• Improving market moment in Financial Services

• Strong momentum in REA India

REA FY24 results key metrics charts, Source: REA Group

Outlook

•  Listings expected to remain flat into FY25, company notes it’s challenging to predict beyond the first half due to potential economic challenges and interest rate movements

•  Forecasting high single-digit cost growth in FY25 (down from the 18% increase in FY24) on the back of continuing investments in technology, employee costs with significant part of cost increase due to inflation and strategic investments

•  Company to focus on AI innovation and app enhancements to drive user experience, new features like AI room visualisation etc.

•  Management also on the lookout for further strategic acquisitions, investments to increase market presence

Broker response

Bell Potter

Rating: BUY | Price target: $223⬆️ vs $218

Views:

•  Results were broadly in line with expectations as the company continues to consolidate its market position

•  Raises earnings per share (EPS) forecasts for FY25 and FY26 by 2% each year

•  Listing momentum appears to have continued into July

Jarden

Rating: SELL⬇️ vs UNDERWEIGHT | Price target: $164⬆️ vs $161

•  Downgraded due to concerns about stretched valuation and potential consensus downgrades

•  Acknowledges strong revenue growth, but also difficulties in forecasting listing volumes

•  Believes REA is a high-quality business, but market expectations for FY25 are presently too optimistic

Jefferies

Rating: HOLD | Price target: $222.40⬆️ vs $200.45

Views:

• Notes strong operational performance, but also risks from easing in property market/impact on listings volumes

• India operations highly prospective for growth

• As outlook grows more uncertain, management will need to carefully execute strategy which increases risks

Macquarie

Rating: OUTPERFORM | Price target: $219⬆️ vs $210

Views:

• Believes REA offers an attractive growth profile over medium term, despite a full valuation

• Reduction in operating expenses in FY25 guidance a positive, but capital expenditure was higher

• Sees strong jobs market and continued immigration as continuing demand drivers for Australian property market

Morgan Stanley

Rating: OVERWEIGHT | Price target: $220

Views:

• Results were in line with expectations

• Note cautious guidance for FY25 listings

• Price increases to continue to drive underlying performance, and likely interest rate cuts should help REA through cycle

Morgans

Rating: HOLD | Price target: $197⬆️ vs $178

Views:

• Results were in line with expectations, but broker acknowledges a strong performance across the company’s main segments

• Highlights were strong growth in Australian residential (driven by price increases) and India

• Broker raises EPS forecasts for FY25-FY27 by 1-3%

UBS

Rating: BUY | Price target: $232.20⬇️ vs $233.60

Views:

• Broker believes the company’s forecast for flat listings in FY25 is too conservative

• Australian property market slowdown is a key risk, but REA is expected to continue to grow its earnings with a strong focus on yield

• Valuation is attractive given growth profile

Broker consensus changes

REA broker consensus changes

To obtain a broker consensus rating, I like to assign a value of +1 to any rating better than HOLD/NEUTRAL/MARKETWEIGHT, 0 for HOLD/NEUTRAL/MARKETWEIGHT, and -1 to any rating worse than HOLD/NEUTRAL/MARKETWEIGHT. I associate an average rating value of greater than 0.5 as a BUY consensus, values between 0.5 and -0.5 a HOLD consensus, and values less than -0.5 as a SELL consensus.

Using this method, REA’s average rating value remained 0.36 which earns it a consensus HOLD rating.

REA’s consensus (average) price target rose to $210.42 from $205.28. This implies a modest 6.0% upside based on the price at the time of writing of $198.46. UBS has the highest price target of $232.20, 17% above the current price, but book-ending this, Bell Potter has the lowest price target of $164, 17% below the current price.