REA Group rises as Morgan Stanley sees positive outlook
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The news: Shares in REA Group lifted on the ASX as Morgan Stanley resumed coverage of the News Corp-controlled real estate portal after a period of research restriction.
The numbers: REA Group shares were up 0.75% to $219.55 by 1:30pm AEDT, having added more than 21% since January.
Morgan Stanley has resumed coverage of the stock with an 'overweight' rating and $250-per-share target price.
Morgan Stanley said its base case is premised on 3% growth in the Australian real estate market in FY25, and the assumption that REA achieves yield growth of 10% to 12% across FY25 to FY27.
Analysts noted that REA's comments at its annual general meeting last week "de-risk FY25 earnings". REA told investors that Australian national listings in the year to date are up 7% compared to the previous corresponding period, ahead of consensus expectations of 1% to 2% for the full year.
Morgan Stanley's base case for FY25 sees total EBITDA of $959 million, up 16% compared to FY24, with earnings per share lifting 24% year on year to $4.47.
The context: Morgan Stanley analysts described REA as an "excellent digital business". They called it a "positive structural growth story" with REA's leadership position and favourable market structure supporting "teens revenue growth", high profit margins and strong free cash flow generation.
They also flagged that the company is likely to benefit from anticipated cuts to the official cash rate by the Reserve Bank of Australia, which would be expected to lift transaction activity and volumes. They noted that consensus estimates have not factored these implications over the next six to 12 months.
REA shares advanced earlier this month, after the real estate platform ended its pursuit of UK property portal Rightmove after four takeover bids were rejected.
The source: Morgan Stanley research
