Real Estate – all singing all dancing
REA Group (ASX: REA) has just released their first half results for the 2016 financial year.
EBITDA – earnings before interest, tax, depreciation and amortisation – was $185.9 million and above consensus expectations of $183.8m.
Underlying net profits before associate losses in the US of $121m was also above consensus expectations of $118.3m. Earnings per share of 91.9 cents for the half was up almost 28 per cent on the 71.9 cents recorded for the corresponding half of the 2015 financial year. REA’s All Premiere product offering contributed to growth in “depth” advertising listings of 33 per cent, which also exceed the estimates of analysts who may or may not have ever run an online real estate advertising business. Pleasingly margins expanded and one reasonably expects that both the revenue growth and some cost cutting contributed. The company will pay a dividend of 36 cents up from 29.5 cents for the previous corresponding half.
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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.
Scott T
:
Happy new year Roger,
Do you subscribe to the theory that a slowing of the Real Estate market, (particularly in Sydney and Melbourne) would actually be good for REA, as longer listing times leads to improved revenue.
We have all heard the anecdotes from last year that in the heat of the market, agents hardly had to market properties as they were snapped up so quick.
Perhaps now as the heat comes out of the market, agents will need to advertise longer and harder to attract the smaller number of buyers, thus spending more money with REA.
All the best
Scott T
Roger Montgomery
:
Thanks Scott, That is indeed a reasonable view. Keep an eye out for another blog post on the subject of Australian property prices and REA group this week.
Andy Dong
:
Hi Roger, Interested to hear your thoughts on Ansell. Their recent profit update caused a significant price drop.
Roger Montgomery
:
Hi Andy, the market reaction appears to be justified given the deteriorating outlook. We don’t own Ansell having sold it previously.
Steve
:
One of the influences may be Murdoch’s announcements regarding News Corp performance. There may be some influence on the REA price given Murdoch’s interests in REA.
But what a strange beast the market is – a stellar performance from REA and the market sells it off.
Thank you Mr Market.
regards
Steve
Roger Montgomery
:
Indeed.
Ramesh Pillai
:
All of the economic indicators are above consensus and still the share price is going south (around -6%). Is there an explanation?
Roger Montgomery
:
Sentiment drives share prices in the short term. Business economics drives long term share price performance. Remember Ben Graham’s quote, paraphrased by Warren Buffett; “in the short run the market is a voting machine, but in the long run a weighing machine”. Do yourself a favour and buy a copy (or two) of the book Value.able. You can get it here: https://shop.rogermontgomery.com/cart.php