Morningstar trims fair value estimate on REA Group
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The news: Morningstar has trimmed its fair value estimate on REA Group shares after the property listing firm abandoned its takeover bid for UK’s Rightmove.
The numbers: Earlier this week, REA pulled out of its pursuit of the UK property portal after four takeover bids were rejected, with the final offer valuing Rightmove at £6.2 billion ($11.97 billion).
REA shares were trading 0.6% lower at $209.63 in early trading on the ASX.
The context: Morningstar had previously lifted its fair value estimate on REA Group by 4%, citing the value accretive nature of the proposed transaction.
But analyst Roy Van Keulen pegged back the fair value by 2% to $123 per share following the company’s announcement that it would not pursue the deal.
What they said: “The decrease in our fair value estimate comes from our view that the acquisition could have been around $10 value-accretive,” he said in a note, that also cited other risk factors.
“... REA Group’s shares continue to screen as overvalued. We don’t think the company will be able to continue raising prices by as much as the market seems to expect without drawing increased regulatory scrutiny.
"Further, we don’t see expansion into India becoming as significant a contributor to earnings growth, as the market seems to expect, because we don’t expect the company to be able to establish network effects there."
The source: Morningstar research
