REA swings higher as housing in top capitals surges

The online property listing company is benefiting from a jump in activity in Sydney and Melbourne and expects the momentum to drive more activity.

REA Group CEO Owen Wilson.

Online property listing company REA Group flagged more housing market activity in Sydney and Melbourne as it delivered a strong quarter and boosted its outlook for property listings and yields on its products.

The company is riding the strong tide in the two capitals and also getting more penetration of its higher-yielding digital advertising products as its lead over rival Domain extends.

“The Australian property market maintained its strong momentum during the quarter, with seller confidence and healthy buyer demand driving activity. Australian consumers’ preference for our premium products and our focus on customer value delivered an exceptional result in this strong market,” REA chief executive Owen Wilson said.

He said that Melbourne and Sydney had the greatest benefit from immigration in driving demand, adding that record prices were giving sellers confidence, with rates were less of a concern and tax cuts were coming.

“Most commentators would say we’re unlikely to get another rate increase, and if we do, it’s probably the only one,” he said. “My view is the market will take one increase in its stride unless the governor of the RBA came out and said we’re going to keep going.”

REA’s core operations for the nine months to the end of March, generated revenue of $1.06bn, up 20 per cent year-on-year, and earnings before interest, taxes, depreciation, and amortisation, excluding associates, of $616m, a lift of 24 per cent.

Third quarter revenue grew by 24 per cent to $334m, driven by strong Australian residential and commercial yield and India revenue growth. EBITDA, excluding associates, increased by 30 per cent to $177m.

The earlier timing of Easter impacted growth rates for national residential listings. March declined by 9 per cent year-on-year, while April jumped by 32 per cent, benefiting from the early Easter and a weak comparable last year.

Sydney and Melbourne continued to outpace other markets in April, up 45 per cent and 53 per cent respectively year-on-year, but markets were strong generally, with year-to-date national listings up 7 per cent.

REA, which is majority owned by News Corp, publisher of The Australian, said that based on current market conditions, it anticipated listings growth of 5-7 per cent for fiscal 2024.

The group said that residential buy yield growth is expected to be between 18-19 per cent in fiscal 2024. Next financial year, buy yield will primarily be driven by an average 10 per cent price increase in its highest penetrated product, Premiere+.

REA is targeting positive operating jaws this financial year, with operating cost growth in the mid-to-high-teens anticipated. Taking out the impact of mergers, operating cost growth in Australia and India is expected to increase in the low to mid-teens.

EBITDA losses in India are anticipated to fall this financial year, and REA expects losses from its associates in fiscal 2024 to be between $25-30m.

E&P Financial Group Entcho Raykovski said the company’s result was strong, and it provided higher listings and yield guidance. “We’d expect the stock to outperform the market today – while most of the conditions behind the upgrade should be well understood, these are nonetheless really good numbers,” he said.

Citi analysts said there was the potential for low-single digit earnings consensus upgrades on the back of the stronger quarter and upgrade to listing volume growth.

REA shares dipped by 30c to $184.70 on Thursday.