If you can’t beat ’em… join ’em
The Hong Kong business of REA Group Limited’s (ASX: REA) Realestate.com has been one of a few dull spots on an otherwise bright canvas for quite some time. Through a well-executed move, they seem to have changed their prospects in the country.
In a notice this morning, REA announced its intention to sell its real estate portal Squarefoot.com.hk to competitor iProperty Group Limited (ASX: IPP) for $15 million, paid via IPP issuing 5 million of new shares at $3 each (note that yesterday; IPP closed at $2.51).
You can read the full announcement here.
The deal is still subject to IPP shareholder approval, however; is set to increase REA’s stake in IPP from 17.2 per cent to 19.4 per cent. By taking a quick glance at the two businesses, we can get an idea of the deal’s merits.
Over 2013 (noting that they report their results at the end of the calendar year), IPP generated revenues of $24 million (including a $5 million one-off payment), and made an EBITDA of $2 million.
On the other hand, Squarefoot.com generated revenues of $2.4 million and earned EBITDA of -$1.2 million over the financial year.
From REA’s point of view, selling an asset that loses money each year to gain an asset that will likely break even or at least lose less seems sensible. Moreover, combining the two largest real estate portals in the Hong Kong market improves their future prospects considerably.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Tony C
:
But at $3 a share. Skaffold values IPP at $0.00 rising to $0.91c over the next few years if they don’t have to raise capital. I am still wondering if these offshore internet groups generate any real revenue.
Roger Montgomery
:
If a company makes no money it is 1) difficult to establish how much it will make, and when or if it will, and 2)it is therefore difficult if not impossible to value.