Realestate.com.au Update
In this week’s video insight Scott discusses REA Group and why it has been a core holding in Montgomery portfolios that has provided delightful returns for our investors.
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Max Zan
:
Hi Scott
What are your views on today’s announcement of a $180 Million Goodwill write down on the Asian operations so soon after purchasing the balance of I Property ?
Management see it as a “NON CASH” impairment charge/transaction but is it really ? If Goodwill was purchased with “CASH” then if you write down Goodwill purchased with “CASH” it’s like putting $180 Million worth of notes on the ground and setting fire to them. How then can they justify calling it a “NON CASH” charge/transaction when shareholder Equity is destroyed like that?
It appears that I Property is shaping up to be a dud investment for the REA Group and it’s shareholders – they paid way too much for it from the start and sadly still have a $480 Million Debt owing on it. Maybe management also see the repayment of that Debt as a “NON CASH” charge/transaction.
Scott Shuttleworth
:
Hi Max,
Well observed – whilst a write-down is called non-cash it typically reflects a realisation that actual cash paid in the past may have been put towards an investment which now might be valued at something less. A paper loss but a loss all the same.
It’s worth considering however that the $180m write-down pales in comparison to the value of REA’s other business segments. The value of REA’s shares is not that dependent on what happens in Asia – more so Australia and hence this is where we spend most of our time looking.
The announcement is disappointing – we can’t be flippant here. But there’s just more significant value drivers which are driving the value of the company over time upwards.
All the best,
Scott