Is the REA Group Limited (ASX: REA) share price a buy? Investors certainly thought so last week.
The REA Group share price rose 7.7% on the day that the third quarter trading update was released to the market. A strong reaction for the realstate.com.au owner.
What was in the REA Group March 2020 quarter update?
The company said that in the three months to 31 March 2020, revenue rose by 1% to $199.8 million, earnings before interest, tax, depreciation and amortisation (EBITDA) went up 8% to $119.6 million, but free cash flow fell 20% to $66.7 million.
The property portal business also revealed how it has performed over the nine months to 31 March 2020. Revenue was down 4% to $640.2 million, EBITDA dropped 3% to $390.8 million and free cash flow was down 14% to $195.2 million.
It was a mixed quarter because the number of listings were actually showing improvement until halfway through March. In the first half of March national listings were up 3% with listing increases of 15% in Melbourne and 24% in Sydney, but finished down 2% after the impact of the coronavirus.
Overall national residential listings declined 7% for the quarter, while Melbourne and Sydney were up 6% and 5% respectively.
So what does this mean for the REA Group share price? Well, share prices are predominately forward looking. The above numbers and April’s listing numbers didn’t seem to put off investors.
In April, national residential listings were down 33%, Sydney listings were down 18% and Melbourne listings were down 27%. Perhaps investors were expecting worse.
Is the REA Group share price a buy?
The company is working to offset some of the lost revenue by implementing cost cutting measures. Reduced marketing expenditure and a review of all supplier arrangements. Fourth quarter core operating expenses are expected to be 20% lower than last year. It continues to achieve stronger viewing numbers than Domain Holdings Australia Ltd (ASX: DHG).
REA Group said it has a strong balance sheet, low debt levels and a cash balance of $135 million at 30 April 2020. It also added a $149 million loan facility as well as an additional $20 million overdraft facility.
The company is well placed to survive through this crisis. People will keep transacting property, particularly once the worst of the crisis is over.
At the current REA Group share price I think it could be a long-term buy. But there could be another painful drop in the next few weeks, so I’d only buy a small-ish REA Group position today.
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Returns as of 7/4/2020
More reading
- The latest ASX shares to be downgraded by top brokers
- Morgans warns investors to sell these ASX 200 shares in the rally
- Leading brokers name 3 ASX shares to buy today
- REA Group shares are up 53% since late March. Is it too late to invest?
- The ASX 200 blue chip shares I would buy with $5,000 after the market crash
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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