Category: Stock Market

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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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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On Monday the S&P/ASX 200 Index (ASX: XJO) started the week in sensational form. The benchmark index stormed 1.3% higher to 5,461.2 points.

Will the market be able to build on this on Tuesday? Here are five things to watch:

ASX 200 expected to fall.

It looks set to be a weaker day of trade for the Australian share market on Tuesday. According to the latest SPI futures, the ASX 200 is expected to fall 20 points or 0.4% at the open. This follows a mixed night of trade on Wall Street which saw the Dow Jones fall 0.45%, the S&P 500 trade flat, and the Nasdaq index jump 0.8%.

Oil prices drop lower.

Energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) could be under pressure today after oil prices dropped lower. According to Bloomberg, the WTI crude oil price fell 0.8% to US$24.54 a barrel and the Brent crude oil price dropped 3.1% to US$30.97 a barrel. Oil prices dropped lower despite Saudi Arabia announcing plans to cut its production further.

Gold price tumbles.

Gold miners including Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) will be on watch after the gold price tumbled lower. According to CNBC, the spot gold price fell 0.75% to US$1,701.01 an ounce. Investors were buying the U.S. dollar ahead of gold on second wave fears.

Incitec Pivot to return from its trading halt.

The Incitec Pivot Ltd (ASX: IPL) share price will be on watch today when it returns from its trading halt. The chemicals company placed its shares in a trading halt on Monday after the release of its half year results and the launch of a $600 million capital raising. Incitec Pivot reported earnings before interest and tax (EBIT) of $159 million, up 34% on the prior corresponding period. In respect to its capital raising, it is aiming to raise its $600 million at $2.00 per new share. This represents an 8.7% discount to its last closing price.

Cochlear rated as a sell.

The Cochlear Limited (ASX: COH) share price is overvalued according to analysts at Goldman Sachs. In response to its update on Monday which revealed that sales were down 60% in April because of the pandemic, Goldman Sachs has reiterated its sell rating and $156.00 price target. It commented: “Whilst elective surgeries appear to be resuming ahead of our expectations, the trajectory of recovery also appears to be shallower.”

Returns as of 7/4/2020

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. 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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