I don't hold (sadly, despite several opportunities to open my account as a shareholder over many years), but surely this is the best way to play the seemingly bottomless Aussie obsession with property? (Yes, forget your nth investment property purchase!)

It is pricey now, but typically only offers fleeting opportunities to buy at something like half-reasonable value. The performance has been rock steady even in difficult conditions for the property market, which has certainly impacted listings growth. That hasn't landed more than a little rap on the knuckles for this outstanding business though.

For all its utter dominance of the local market where it still seems to have copious amounts of pricing power levers to pull, it is also targeting an enormous opportunity in the Indian market with its ownership of the largest real estate classifieds platform there. I wouldn't bet against them making that work given the stellar track record of this business.

REA Group shows its resilience in tough times

by Joseph Kim from Montgomery Investment Management 14/08/20

Property advertising platform, REA Group (ASX:REA), was one of the first businesses to announce its results this reporting season. Given the COVID-related restrictions on real estate transactions, it was a strong performance. And, pleasingly for investors, the company will be paying a dividend.

The following are some highlights from the result:

• Full year net profit after tax was down 9 per cent to $269 million, driven by a 6 per cent decline in revenue to $820.3 million
• Total dividend per share of $1.10, equating to a payout ratio of 54 per cent based on earnings per share of $2.04/share
• The result was delivered in an environment where listing volumes declined 12 per cent, and project commencements declined 27 per cent
• Media and financial services revenues declined 19 per cent and 15 per cent respectively
• The result showed good cost control, with REA Group delivering on its 20 per cent cost reductions for the JunQ20 guided to earlier in the pandemic. The company has guided to a flat cost outcome for FY21, which was better than expectations of around a 10 per cent increase
• The revenue line also benefited from continued incremental benefits from additional “depth” revenues (ie higher tier listings and ancillary products) – a feature of REA results over the past 3-4 years.

Listings volumes have rebounded as COVID-restrictions ease (ex-Melbourne), with Sydney listing volumes +47 per cent in July on an easy comparator period in the prior year. Listing volumes suffered for much of 2019 given the uncertainty as a result of the Federal election, although did show signs of life in early 2020. We expect listing volumes to continue to improve, although we believe the investors are already anticipating a significant improvement in listing volumes by FY22 given the resilient share price performance.

REA Group has also deferred any price increases in the current environment, and will look to increase prices if there is a sustained recovery in the property market. However, the CEO noted that they are still “a long way from the circumstances to push a price increase”, with the COVID-19 path a significant part of the decision to raise prices.

REA has also wound back relief measures introduced for the June quarter across Australia, with the exception of Melbourne. These include lower subscription fees and free re-listing and re-upgrade features necessary during the height of the coronavirus pandemic.

While very difficult to track, the CEO believes there is not much evidence of distressed selling in the present market given the Government’s stimulus efforts as well as mortgage holidays implemented by the banks. There is the possibility of a pick-up in distressed selling in September / October, which may increase volumes – our channel checks suggest there are signs of sellers looking to transact prior to the end of any mortgage holiday, especially given the decline in rents and increase in vacancies.

REA Group delivers strong performance despite volatile market conditions Financial highlights from core operations1 compared to prior corresponding period2:

• Revenue3 of $430.4m, down 2%

• Operating expenses of $145.8m, down 13%

• EBITDA4 (including associates) of $290.2m, up 9% • Net Profit of $172.1m, up 13%

• Interim dividend of 59 cents per share, up 7%

• EPS of 130.7 cents, up 13%

1 Financial results/highlights from core operations exclude significant non-recurring items such as gain/loss on acquisitions and disposals and transaction costs and historic tax provision (historic indirect tax provision reflects potential retrospective changes to interpretation of tax law). In the prior comparative period, they excluded items such as restructure costs and gain/loss on acquisitions and disposals and transaction costs.

2 All financial growth rates refer to YoY comparisons unless otherwise stated.

3 Revenue is defined as revenue from property and online advertising and revenue from Financial Services less expenses from franchisee commissions.

4 EBITDA includes share of associates and joint ventures.

Also Presentation

https://rea3.irmau.com/site/PDF/d52b76c3-a286-40c6-a61e-f1b5edf3c73c/Appendix4DandInterimFinancialReportH1FY21

REA Group Ltd (ASX:REA, “REA”) today announced that it has entered into a Scheme Implementation Agreement (“SIA”) with Mortgage Choice Limited (ASX:MOC, “Mortgage Choice”) to acquire 100 per cent of the outstanding shares in Mortgage Choice for $1.95 cash per share (“the Offer”) by way of a scheme of arrangement (“Scheme”). The Offer represents an enterprise value of approximately $244 million.

Mortgage Choice is a leading Australian mortgage broking business with more than 500 brokers, 380 franchises across the country, and over 30 lending partners. It has a loan book of $54 billion dollars and settlements of $11 billion dollars in the 12 months to December 2020(1). Mortgage Choice reported net revenue(2) of $22.2 million and net profit after tax of $4.1 million for the 6 months to December 2020(3).

Accelerating REA’s financial services strategy The proposed acquisition aligns with REA’s financial services strategy by:

•  Leveraging REA’s digital expertise, high intent property seeker audience and unique data insights across a larger network
•  Providing a compelling opportunity to establish a leading mortgage broking business with increased scale
•  Complementing the existing Smartline broker footprint resulting in greater national broker coverage

Certainly not a bad business when it can deliver 31% increase in net profits during a 6mth period where Sydney and Melb have been in and out of covid lockdown.

Invested in India (Housing.com) and USA (Move, realtor.com)

Interesting features being offered overseas but not yet here in Aust website:

• Rent pay/property management services platform
• Sales Lead generation platform for sales agents
• Loans (bought Mortgage choice last yr - integration happening)