REA Group share price: 4 things to consider before FY20 results

We examine some of the key things investors and traders should consider before REA Group reports its full-year results to the market this Friday, 7 August.

When will the company report its full-year results?

Property advertising company REA Group (REA) is set to report its full-year (FY20) results this Friday, 7 August, according to Bloomberg.

REA Group share price: The analyst view

Interestingly, although Australia’s property market has continued to show signs of weakness, sell-side analysts remain constructive on the outlook for REA Group, assigning the stock a consensus Overweight rating and an average price target of $104.02, according to the Wall Street Journal.

On a more granular level, in a July research note, analysts from J.P. Morgan reiterated their Overweight rating on the property advertising stock, arguing that:

‘Our latest depth check for REA shows that as new listings have improved with the lifting of restrictions around the country, depth uptake in June has accelerated not only vs. April but also vs. the pcp, trailing behind only the previous highs reached last November during the peak spring selling season.’

Yet with Victoria – representing one of Australia’s key property markets recently entering a new round of more severe lockdowns – investors are likely eagerly awaiting any commentary about how such restrictions may be expected to impact REA’s FY21 outlook, as part of the comany's full-year results release.

CoreLogic’s recent property market snapshot in focus

In addition to new lockdown measures in Victoria, Australia’s property market has continued to weaken since J.P. Morgan released the above-discussed research note, with CoreLogic this week reporting that national dwelling values fell 0.6% in July.

Overall, Melbourne was the worst hit, with property values slipping 1.2% on a month-over-month basis. By comparison, Sydney dwelling values dropped 0.9%, Brisbane shed 0.4%, while Canberra property prices on average rose 0.6%.

Even so, the outlook remains tilted towards the downside, with CoreLogic’s head of research, Tim Lawless warning that: ‘Urgent sales are likely to become more common as we approach these milestones, which will test the market’s resilience.

‘Similarly, the recent concerns of a second wave of the virus and the potential for renewed border closures and stricter social distancing polices are likely to further push consumer sentiment down. This is likely to weigh on both home buying and selling activity more broadly,’ Mr Lawless finished.

Despite the headwinds facing Australia’s property market – and by extension property advertisers – the REA Group share price has continued to perform strongly, rising more than 70% from the lows it recorded in March, last trading around $108 per share.

Recent results unpacked

Looking at REA Group’s third quarter (Q3) results release, the company reported revenues (post broker commissions) of $199.8 million, representing a year-over-year increase of 1%.

On the bottom-line, REA reported robust earnings (EBITDA) growth of 8% – bringing Q3 EBITDA to $119.6 million. In July, J.P. Morgan analysts said they expected REA Group to report lower top and bottom-line figures in the 2020 fiscal year, with full-year revenues forecasted to come in at $802 million, against earnings (EBITDA) of $459 million.

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