Housing strength drives REA to $226m first half profit

The booming housing market has led to strong returns for the digital real estate company as buyers take advantage of an increase in supply.

Owen Wilson, CEO of REA Group says the impact from Covid and a federal election should be temporary.

REA Group is riding the surging residential property market, turning in a 31 per cent lift in first half net profit to $226m.

The digital real estate company was buoyed by strong buyer demand underpinned by increased supply of homes on the market in late 2021 following the end of lockdowns. That is flowing into this year with January residential listings up 14 per cent year-on-year.

“REA Group has emerged from another disruptive year in excellent shape, and we expect the favourable market conditions to continue into 2022. While Covid and the federal election may throw some curveballs, the effect on our market should be temporary,” REA chief executive Owen Wilson said.

He flagged the group would launch new products, including in financial services, and continue its offshore push into India and Asian markets.

REA’s core operations lifted year-on-year revenue growth by 37 per cent to $590m and had a 27 per cent jump in earnings before interest, taxes, depreciation, and amortisation to $368m.

Revenue growth was underpinned by increases in all major lines of business, including a 31 per cent rise in the Australian residential business on the back of the strong market recovery despite the impact of Melbourne and Sydney lockdowns in the first quarter.

Core operating costs, excluding acquisitions, increased by 17 per cent during the half, reflecting reduced operating costs in the prior period as REA came though the coronavirus crisis, and it has since invested in growing its business.

REA noted the surge in January listings, with Sydney up 19 per cent and Melbourne up 5 per cent, although growth rates are expected to slow in the second half.

The company cautioned the federal election and potential regulatory measures to slow house price inflation could also negatively impact listing volumes.

REA is targeting full year positive operating jaws – where revenues rise faster than costs – excluding the impact of its Indian business and Mortgage Choice acquisitions.

Operating cost growth, excluding acquisitions, is expected to slow to high-single digit growth in the second half, reflecting a more normalised operation.

REA will reap a positive contribution from US business Move, although this will be offset by losses from other newer businesses.

The company will pay an interim dividend of 75c per share fully franked, showing a 27 per cent jump on last year.

Mr Wilson said the removal of Covid restrictions saw a wave of new listings on realestate.com.au, with sellers making up for the time lost in lockdown and taking advantage of the significant buyer demand.

“Our flagship site realestate.com.au continued its position as the number one address in property. In October, a record of 145.5 million visits to realestate.com.au were achieved and the site has grown to be Australia’s seventh largest online brand,” he said.

Local revenue of $525m was up 25 per cent for the half, driven by growth in all major Australian lines of business. Residential revenue increased 31 per cent to $387m.

Buy revenue experienced strong growth, benefiting from national new listings growth of 17 per cent and greater use of premium products. Rent revenue was affected by a decline in rental listings, which remain depressed due to the continued lack of interstate and international migration.

The company’s financial services revenue was $41m, a 24 per cent lift, as settlements jumped on the back of continued broker network growth and increased productivity in a buoyant housing market, partly offset by higher broker payout ratios.

REA shares closed 58c down at $143.45.

Citi analysts said cost growth guidance was higher but they expect broker upgrades on the back of the stronger than expected first half result. “We expect the share price to likely outperform on the back of the first half beat and strong listings growth to start the second half,” they wrote.