REA Group boosts dividend

REA Group reports 26% growth in profit and dividend payout.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published August 14, 2013 9:45 am AEST

REA Group (ASX: REA) reported profit growth of 26% to $109.7 million on Tuesday, and announced a final dividend of 25.5 cents per share, taking the full year distribution to 41.5 cents per share, 26% higher than in FY12.

At the current price of around $33, the dividend represents a yield of around 1.4%, fully franked. Additionally, the company reported a 21% increase in revenue, a 9% increase in operating margin, and a 26% increase in earnings per share. FY13 represented the ninth year out of the previous 10 in which the company has grown profits, and the tenth consecutive year in which the company has increased revenue and operating margin.

The result missed some analyst's expectations, with Morningstar expecting a profit above $120 million, pushing the share price down around 4% on Tuesday.

REA Group operates market-leading real-estate websites in Australia and Italy, and rapidly growing websites in Hong Kong, Luxembourg, Germany and France. A key focus for the company has been pushing realtors to purchase 'depth' products which offer priority listings, longer listing durations, or targeted email distributions to members. These products are becoming popular, especially in Australia, and are more expensive than vanilla listings due to the added features.

In Australia the company operates the residential and commercial real estate sites realestate.com.au and realcommercial.com.au. The two websites recorded 22% revenue growth during the year, largely as a result of average revenue per agent (ARPA) rising by 26% due to the popularity of the 'Highlight' and 'Premiere' depth listings.

REA group's websites accounted for 74% of total minutes spent on Australian real estate sites, with the nearest competitor, Domain.com.au owned by Fairfax Media (ASX: FXJ), accounting for 19%. In terms of site views, the two REA sites recorded 20.6 million monthly desktop visits (2.5 times Domain.com.au), a 65% increase in mobile site views, and the REA mobile phone app registered its 2.2 millionth download.

The story is similar in Italy, where REA runs the market-leading casa.it real estate website. It recorded a 60% increase in depth listing revenue, a 14% rise in revenue and an increase of 18% in average monthly visits, all in a country where the unemployment rate is above 12%.

REA's assets in Hong Kong, Luxemburg, France, and Germany continued to gain momentum. The Hong Kong website squarefoot.com.hk registered a 93% rise in site visits, and the European businesses achieved revenue growth of 23%.

Foolish takeaway

While the results from REA Group did not meet some analyst's expectations, the FY13 report demonstrates that the company is finding ways of meaningfully growing profit despite dominant market share in Australia and Italy. Revenue and profit should benefit from an improvement in the Australian housing market in the next 12 months, as recent interest rate cuts improve consumer confidence and spending.

The company's share price has risen strongly in the past 12 months, increasing by around 250%. Investors may view any weakness in the share price as an opportunity to purchase a quality company with solid growth prospects.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned in this article.

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