Take a pass on Real Matters, says National Bank Financial

Toronto-based Real Matters, a network management services platform for the mortgage and insurance industries, announced its second quarter 2019 financials on May 2, coming in with net revenue of $20.1 million, Adjusted EBITDA of $2.8 million and Adjusted EPS of $0.01 per share. (All figures in US dollars unless noted otherwise.)

Tse was calling for a top line of $17.5 million, an Adjusted EBITDA loss of $0.7 million and an Adjusted EPS of negative $0.01 per share. The analyst notes that REAL’s strong numbers were in large part due to a solid performance from its Appraisals segments, while its Title and Closing (T&C) platform lagged.

Tse says that key takeaways from the Q2 were: improvements in net revenue margin from its Appraisals unit, which is now live with all six Tier 1 lenders; weakness in the mortgage market for its T&C unit due to weak refinance activities; and a lower interest rate environment that worked to the company’s benefit.

“Despite a solid quarter, the sensitivity of the business to the macro environment and the fact that T&C has still not hit its stride suggests caution given the stock’s turn year to date, that’s had it inching towards our former target price of C$6.00 That said, the stock is also pricing in stronger expectations and given the continued headwind in refinance activity and rate uncertainty, we think the risk-to-reward profile looks balanced,” says Tse.

The analyst rates the impact of REAL’s Q2 as a positive while judging that the stock is now reasonably priced. His updated forecast calls for 2019 net revenue of $88.2 million and EBITDA of $12.1 million and his C$6.50 target represents a projected return of nine per cent at the time of publication.