National Bank Financial analyst Richard Tse is upping his 12-month target on Real Matters (Real Matters Stock Quote, Chart, News TSX:REAL), arguing in an update to clients Thursday that the cloud-based real estate platform is getting both tailwinds and growing momentum from the US mortgage market.
Toronto-based Real Matters, a network management services provider for the mortgage lending and insurance industries, has seen its share price grow rapidly over the past year and a half, with the stock currently up a full 88 per cent in 2020 alone.
In his report, Tse said he spoke to investors with Real Matters CEO Jason Smith and CFO Bill Herman on Thursday, saying that the conversation reinforced what he’s been seeing from the US mortgage market. Tse believes that REAL is continuing to benefit from a multi-year tailwind in refinance volumes under the currently low-rate environment.
“While the Company is benefiting broadly from that tailwind, its platform is also gaining share within its customer base,” Tse wrote. “Looking ahead, Real Matters continues to track to its goal of 15-20 per cent market share in US appraisals (from around 10.6 per cent today) and upwards of 3 per cent (from just over 1 per cent today) in US Title and Close with a 35-40 per cent net revenue margin and 25-30 per cent adjusted EBITDA margin by the end of F2021.”
“If anything, the incremental takeaway for us is that those targets are likely to increase based on the tone of the discussions today. And if that weren’t enough – it appears another growth driver (data monetization) could be scaling as well as we move into 2021,” he wrote.
For evidence, Tse pointed to data from the Mortgage Bankers Association (MBA) from the first week of June which found new home purchases up five per cent from the previous week and up 13 per cent year-over-year, with refinancings up 80 per cent year-over-year. And with the US Federal Reserve recently announcing it would hold its key interest rate steady through 2020, Tse said the momentum should continue.
“In the end, we heard a Management team eagerly planning for an Investor Day this Fall to unveil its updated strategic outlook. Based on their tone, that eagerness likely only comes from positive expectations,” Tse said.
Tse also had praise for REAL’s operational efficiencies which are driving up margins to potentially even higher levels. The analyst further likes the heaps of appraisal data being collected by Real Matters which has yet to be monetized.
“With continued macro strength (low rates ~ higher volumes) and market share gains, we continue to like the risk-to-reward profile on REAL. We reiterate our Outperform rating and with a revised target of C$25 (was C$23) which implies a Net EV/Sales valuation of 9.7x on F21E (was 8.6x),” Tse added.
At press time, Tse’s C$25.00 target represented a projected return of 17 per cent. Tse thinks REAL will generate fiscal 2020 net revenue and EBITDA of $419.7 million and $55.6 million, respectively. (All figures in US dollars except where noted otherwise.)