Real Matters has a 126 per cent upside, Canaccord Genuity says

Real estate software company Real Matters Inc. (Real Matters Stock Quote, Chart, News: TSX:REAL) just announced an agreement with a Tier 1 lender in the United States, a customer pickup that can only boost REAL’s chances of reaching its target penetration into the US, says analyst Robert Young with Canaccord Genuity. In an update to clients on Tuesday, Young reiterated his “Buy” recommendation and one-year target price of $16.00.

Markham, Ontario-based Real Matters, which had its debut last May after a $157-million IPO, announced on Tuesday that it is beginning deployment with an unnamed Tier 1 lender in the US to provide title and closing (T&C) services for core refinance mortgage originations through its Solidifi platform by the end of fiscal 2018. Tier 1 lenders include names such as Chase, Wells Fargo, Citi, Bank of America and Quicken.

“We are thrilled to be putting our Solidifi title and closing network management platform to work for one of the largest mortgage lenders in the U.S., building on our performance track record in appraisals,” said Real Matters CEO Jason Smith in a press release. “We are transforming the consumer experience at the closing table by setting a new standard for the industry. Solidifi has the capability and scale to deliver quality and compliance, on a consistent basis.”

Young says that the announcement is well ahead of the company’s original stated timeline, which included launching a Tier 2 customer by the end of 2018 and a Tier 1 customer before the end of 2019.

“We believe the company is executing on its 2021 objectives and providing more confidence in its five-pronged growth strategy, which has remained unchanged since the IPO,” says the analyst. “One of the targets includes reaching 1-3 per cent of the US T&C market by 2021. With a Tier 1 bank being launched in F2018, we expect that the company will be able to leverage this experience to drive continued Tier 1 and 2 wins.”

The analyst notes that the total US T&C market is expected to exceed US$13 billion annually and that one per cent of the market (the lower end of Real Matters’ 2021 target) represents US$130 million in annual revenue. In 2017, the company reported US$69.5 million in T&C revenue.

“Based on our estimates, Real Matters currently trades at EV/C2018E Net Revenue of 3.7x which is a discount to the peer group EV/C2018E sales at 6.4x, with Real Estate IT vendors at 5.2x, transaction-based SaaS software at 6.3x and Property and Insurance vendors at 6.8x,” says the analyst.

Young says he expects $74.1 million in revenue for Q2/F18 for REAL (consensus $72.8 million). His $16.00 target price represents a projected return on investment of 126 per cent at the time of publication.