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.
Real Estate Investar Group |
Q3 saw higher volume of property transactions |
Q3 update |
Software & comp services |
30 May 2017 |
Share price performance
Business description
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Real Estate Investar Group is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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
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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).