REA Growth Robust Despite Weak Backdrop

REA Group ((REA)) has grown its premium advertising volumes and counteracted weakness in expenditure by developers. Nevertheless, FY17 results fell short of many expectations, which several brokers believe had become inflated. A better Australian result was matched by lower Asian earnings and slightly higher costs. Operating earnings (EBITDA) at $380.9m were up 16.2% and net profit at $228.3m up 11.7%.

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REA Continues To Innovate & Grow

With property prices still heading north – particularly in the major capitals – we recently took the opportunity to meet with the CEO and CFO of REA Group (ASX: REA), Tracey Fellows and Owen Wilson. Our discussion gave us a greater insight into REA’s 1H17 result and the prospects of Australia’s leading online real estate advertising company.

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REA At A Low

REA Group is succeeding despite current market conditions, not because of them. The strength of the Australian housing market and REA’s own robust financial performance suggest the owner of the realestate.com.au property portal is riding boom times. However, the company is currently navigating one of the most challenging periods of the last two decades. There is plenty of room for REA’s earnings and stock price to rise from these lows.

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Corks Pop At REA Group

There are a couple of reasons why REA Group has motored up 10% since its interim result in February. The first is that many growth stocks are surging because long-term interest rates are plummeting. Plugging in lower interest rates tends to boost the valuations that drop out of broking analysts’ models (and that’s just one of their dirty little secrets).

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Another Way To Make Money From Property

Global returns and interest rates are so low that in Denmark borrowers are finding their mortgage balances are declining, even without making payments, because interest rates are negative. Elsewhere, high-quality companies are trading at eye-watering multiples. In private equity, too much money is chasing too few opportunities, and meanwhile investors are happy to buy property that is yielding barely more than bank interest despite the higher risk profile.

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