Leading equity intelligence firm Edison has initiated coverage of Australian property investment platform Real Estate Investar including a summary of key findings from Frost and Sulllivan.
The detailed report, available on the Edison website, outlines Real Estate Investar's strategy, products and revenue including a market break-down and SWOT analysis.
The news is all good for Real Estate Investar (REV), which floated on the ASX last December, raising A$5 million, (25 million shares at A$0.20 per share) to fund market growth and product development.
"We are forecasting 398,000 members and approximately 9,950 paying users by 30 June 2018 at average monthly revenue per user (ARPU) of A$86 per month," the Edison report says.
"Although it will be driven by a mix of casual users and subscribers, our forecasts of ARPU take into account the company’s strategy of offering incentives for subscribers to sign for longer periods."
As of January 2016, REV's membership base of about 155,000 comprised approximately 2,700 paying subscribers representing 0.15 per cent of all investment property owners in Australia and NZ, and 0.4 per cent of owners with more than one investment property.
Edison says REV’s "unique product" is underpinned by strong relationships with strategic partners such as chair and investor Simon Baker, who has built similar businesses, and Fairfax Media which has a 12.5 per cent equity interest, and brings Domain, a key referral site and APM, a key data provider to the offering.
REV offers integrated online software tools for real estate investors in Australia and New Zealand (NZ) on a software-as-a-service (SaaS) basis.
"Other free products available to property investors tend to meet individual property needs and be standalone," Edison notes in the report.
"REV has a complete end-to-end suite of online services that help investors with identifying, analysing, tracking and accounting for residential properties in Australia and NZ.
"It also has a partnership with accounting software giant Xero, which opens up market expansion opportunities."
Edison also predicts Real Estate Investar's full year revenue figure of $4 million for 2015 will increase to $5 million in 2016 and $13.8 million by June 2018.
EBITA will struggle in 2016 and 2017, falling from $773,000 in 2015, to $762,000 this year and $461,000 in 2017, but by June 2018, Edison predicts earnings will come back strongly showing a healthy jump to $2 million.
"We are forecasting that REV will generate positive operating cash flow from the second half of FY16, in line with management forecasts. At that point, we forecasting 4,500 subscribers, with 3,623 assumed to be on one- to two-year contracts," the report states.
"Our forecasts assume that from FY17 REV is profitable with an increasing cash balance.
"Our forecasts do not include investments in new markets, which could reduce the expected cash balance. In our view it is unlikely that further investments in new markets or new technology would be large enough to warrant further capital raises.
"The software platform is well developed and management expects that further investment in the platform will be minimal. No other capital expenditure is contemplated by management," the report adds.
"The prospectus states that dividends are not contemplated in the short term. Our base case forecasts show ~A$7 million of cash on hand at 30 June 2018."
"Our 10-year Discounted Cash Flow approach, using REV’s FY16 prospectus forecasts and our own growth assumptions from then, results in a base-case valuation of A$0.26/share," the report states.
"The current share price implies the paying users will grow to 7,400 at an average monthly revenue per user of A$81 and annual revenue of A$10.6 million vs our forecast of 9,950 users at A$86 by FY18.
Key Findings from Frost and Sullivan
Based on a survey of 257 residential property owners in Australia and New Zealand, Frost and Sullivan concludes the potential market for REV membership is about 500,000 from a total addressable market of 2.182 million.
This survey shows that of the potential membership pool of 500,000, 25 per cent are potential paying users.
It also finds that in Australia, annual expenditure on property expenses excluding mortgage interest and agents’ commission are about A$11 billion, of which A$1 billion is in the ‘sundry’ category that costs such as a REV subscription are likely to fall.
Other interesting findings: