Real Estate Investar Group — Q3 saw higher volume of property transactions

Real Estate Investar Group — Q3 saw higher volume of property transactions

Real Estate Investar (REV) saw Q317 revenue growth of 63% y-o-y with a substantial pick-up in property transactions. The company continues to execute on its strategy to capitalise on its growing membership base of property investors in order to generate property-related transaction revenues. We leave our forecasts substantially unchanged and continue to forecast EBITDA break-even in H217.

Katherine Thompson

Written by

Katherine Thompson

Director

Real Estate Investar Group

Q3 saw higher volume of property transactions

Q3 update

Software & comp services

30 May 2017

Price

A$0.044

Market cap

A$3.7m

Net cash (A$m) at end Q317e

0.3

Shares in issue

84.5m

Free float

35%

Code

REV

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

33.3

37.5

(10.2)

Rel (local)

35.0

36.5

(16.2)

52-week high/low

A$0.075

A$0.028

Business description

Real Estate Investar provides integrated online services to Australian and New Zealand property investors to help them identify and manage suitable properties.

Next event

FY17 results

August 2017

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Real Estate Investar Group is a research client of Edison Investment Research Limited

Real Estate Investar (REV) saw Q317 revenue growth of 63% y-o-y with a substantial pick-up in property transactions. The company continues to execute on its strategy to capitalise on its growing membership base of property investors in order to generate property-related transaction revenues. We leave our forecasts substantially unchanged and continue to forecast EBITDA break-even in H217.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/15

4.0

(1.1)

(5.2)

0.0

N/A

N/A

06/16

4.9

(1.5)

(2.4)

0.0

N/A

N/A

06/17e

6.0

(1.3)

(1.6)

0.0

N/A

N/A

06/18e

7.2

(0.1)

(0.1)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q317 revenue update

REV reported Q317 revenues of A$1.5m, +63% y-o-y/+57% q-o-q. Cash receipts were A$1.25m in the quarter, +62% y-o-y/+22% q-o-q. The company ended Q317 with a subscriber base of 255,644, up from 250,124 at the end of Q217. Receipt of an R&D tax credit in the quarter resulted in a net cash position of A$0.33m at the end of Q317 (down from $0.56m at end H117). REV facilitated 37 property transactions in the quarter, compared to 20 in H117 and eight in Q316.

Outlook and changes to forecasts

The company restructured its cost base during Q217, which should deliver annual fixed cost savings of $650k. It has also hired a new commission-based sales team and head of sales with a focus on selling premium memberships. We leave our revenue and cost forecasts unchanged, with a small increase in interest income to reflect the higher than expected cash position. We note that to achieve FY17 revenues of A$6.0m, REV will need to generate Q417 revenues of A$2.3m (which we estimate would require c 47 property transactions). We continue to forecast REV reaching EBITDA break-even in H217.

Valuation: EBITDA break-even key to upside

REV is an early-stage company so it is not possible to be definitive on valuation. Our 10-year DCF, based on a WACC of 13.5% and long-term growth of 2%, results in a base case valuation of 7.0c per share – significantly above the current share price. If REV is able to successfully transition to a transaction-driven business model and achieve EBITDA break-even in line with our forecasts, we see scope for significant share price appreciation. Key data points that will evidence such progress include transaction volumes growing on a quarterly basis (particularly direct property sales), increasing penetration of the membership base for paid subscription services and good control of operating costs.

Exhibit 1: Financial summary

A$'000

2015

2016

2017e

2018e

30 June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

4,023

4,904

6,011

7,225

Cost of Sales

(2,137)

(2,811)

(2,631)

(2,786)

Gross Profit

1,886

2,092

3,379

4,438

EBITDA

 

 

(773)

(1,046)

(840)

301

Operating Profit (before amort. and except.)

(1,068)

(1,461)

(1,311)

(119)

Intangible Amortisation

0

(2)

(8)

(8)

Exceptionals

0

202

0

0

Other

0

0

0

0

Operating Profit

(1,068)

(1,261)

(1,319)

(127)

Net Interest

(37)

(34)

3

3

Profit Before Tax (norm)

 

 

(1,105)

(1,495)

(1,307)

(116)

Profit Before Tax (FRS 3)

 

 

(1,105)

(1,295)

(1,316)

(124)

Tax

(989)

(70)

0

0

Profit After Tax (norm)

(2,094)

(1,565)

(1,307)

(116)

Profit After Tax (FRS 3)

(2,094)

(1,365)

(1,316)

(124)

Average Number of Shares Outstanding (m)

39.9

65.3

84.5

84.5

EPS - normalised (c)

 

 

(5.2)

(2.4)

(1.6)

(0.1)

EPS - normalised and fully diluted (c)

 

(5.2)

(2.4)

(1.6)

(0.1)

EPS - (IFRS) (c)

 

 

(5.2)

(2.1)

(1.6)

(0.1)

Dividend per share (c )

0.0

0.0

0.0

0.0

Gross Margin (%)

46.9

42.7

56.2

61.4

EBITDA Margin (%)

-19.2

-21.3

-14.0

4.2

Operating Margin (before GW and except.) (%)

-26.5

-29.8

-21.8

-1.6

BALANCE SHEET

Fixed Assets

 

 

1,838

2,751

2,538

2,158

Intangible Assets

1,656

1,619

1,442

1,313

Tangible Assets

45

89

116

195

Investments

136

1,043

981

650

Current Assets

 

 

824

4,325

3,268

3,583

Stocks

0

0

0

0

Debtors

695

2,053

2,615

2,600

Cash

129

2,272

653

984

Other

0

0

0

0

Current Liabilities

 

 

(4,548)

(3,191)

(2,661)

(2,660)

Creditors

(3,841)

(2,951)

(2,423)

(2,422)

Short term borrowings

(706)

(241)

(238)

(238)

Long Term Liabilities

 

 

(140)

(113)

(68)

(128)

Long term borrowings

(6)

0

0

0

Other long term liabilities

(134)

(113)

(68)

(128)

Net Assets

 

 

(2,026)

3,771

3,078

2,954

CASH FLOW

Operating Cash Flow

 

 

(252)

(2,160)

(1,115)

316

Net Interest

(11)

3

5

3

Tax

0

0

0

0

Capex

(552)

(205)

(124)

(320)

Acquisitions/disposals

0

(143)

(382)

0

Financing

164

4,549

0

0

Dividends

0

0

0

0

Net Cash Flow

(651)

2,043

(1,615)

(1)

Opening net debt/(cash)

 

 

(68)

583

(2,031)

(415)

HP finance leases initiated

0

0

0

0

Other

0

571

(0)

331

Closing net debt/(cash)

 

 

583

(2,031)

(415)

(746)

Source: Real Estate Investar, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Real Estate Investar Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Real Estate Investar Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Hogg Robinson Group — On a journey

Hogg Robinson (HRG) has combined a strong set of financials with a declaration of medium-term growth initiatives in both travel management and FinTech. Importantly, their implementation should be facilitated by the success of management’s largely completed restructuring and deleveraging programme. While there will be a short-term cost (we are reducing our current-year PBT forecast by 17%), this is wholly related to stated opex investment rather than any business deterioration (our revenue forecast is unchanged). Robust finances (FY17 net debt/EBITDA of just 0.3x) should allow continued dividend growth (FY17 cover of 3.0x).

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