RBC starts REA Group at “outperform,” sees 25% upside to AUD 270 target

Investing.com -- RBC Capital Markets has initiated coverage on digital real estate advertising company REA Group Ltd (ASX:REA) with an “outperform” rating and a price target of AUD 270 per share, suggesting a 25% total return from its last close of AUD 218.68.

The initiation by analysts Garry Sherriff and Jackson Lee, said REA remains “no fading star” as it continues to deliver double-digit yield growth supported by property price gains, depth penetration, and adjacent revenue streams.

“We sit +3% and +5% above consensus EPS in FY26 and FY27,” the analysts said, highlighting higher listings, stronger yields, and lower depreciation and amortisation assumptions compared to consensus. 

The brokerages’s valuation blends discounted cash flow and multiple-based models, reflecting an enterprise value of about AUD 35.3 billion and 25x FY26E EV/EBITDA, below its five-year average of 27x.

RBC said market concerns tied to CoStar Group’s entry into Australia and the Australian Competition and Consumer Commission’s (ACCC) information request appear overstated. 

“Share price underperformance on CoStar/Domain and ACCC concerns appears overdone,” the brokerage said, noting that REA’s dominant position, underpinned by network effects and its vendor-paid advertising model, makes “meaningful disruption in Australia difficult.”

According to Sherriff, CoStar lacks “an existing data platform, a differentiated pricing model, and scale advantage,” all of which have historically underpinned its overseas growth.

RBC’s review of CoStar’s previous expansion in the United States and United Kingdom suggested the U.S. firm’s entry into Australia would escalate “marketing intensity rather than price competition.”

The brokerage also said it does not expect adverse findings from the ongoing ACCC request for information, describing it as “not a formal investigation.” 

Previous competition reviews into online platforms “did not find adverse outcomes against REA,” the analysts wrote, adding that the company’s pricing differentials reflect measurable performance outcomes and a defensible value link.

REA’s financial performance remains robust, with revenue projected to rise from AUD 1.67 billion in FY25 to AUD 2.12 billion in FY27, while EBITDA is forecast to grow from AUD 969.2 million to AUD 1.27 billion over the same period. 

Underlying earnings per share are estimated to increase from AUD 4.28 to AUD 6.19, supported by continued pricing power in depth products and suburb-based price optimisation. 

The analysts forecast a five-year compound annual growth rate of about 12% in yield, while free cash flow is expected to reach AUD 733.3 million in FY27.

RBC said REA’s investments in financial services, data analytics and agent workflow tools expand its monetisation window beyond listings. 

These segments, it said, “improve revenue quality through more recurring streams.” The report added that REA India could “follow in Australia’s footsteps” as digital adoption accelerates.

REA is “attractively priced” below historic averages, the analysts added. “Presents an attractive opportunity to own a dominant player with continued pricing power and growth opportunities in adjacencies and offshore.”