Real Matters has a 90 per cent upside, says ATB Capital

Canadian tech company Real Matters (Real Matters Stock Quote, Charts, News, Analysts, Financials TSX:REAL) just delivered a couple of misses with its latest quarterly results. But ATB Capital Markets analyst Martin Toner is holding the line on the stock for the moment, reporting on the company’s fiscal fourth quarter results in a flash update to clients on Wednesday.

Toronto-based software and services platform for the mortgage lending and insurance industries, Real Matters reported consolidated revenue of $58.2 million, down 53.7 per cent year-over-year and an adjusted EBITDA loss of $1.1 million compared to a gain of $11.0 million a year earlier. (All figures in US dollars except where noted otherwise.)

Management for the company chose to focus on the positives in its quarterly comments, referring to REAL’s strong balance sheet, continued launch of new clients and market share gains with its five largest lenders.

“With growing market demand for home equity products, our team continues to leverage this opportunity to expand our channels with existing and new appraisal and title clients to build long-term franchise value,” said Real Matters CEO Brian Lang in a press release. 

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“Throughout the year, we managed our expenses by progressively scaling down our cost structure in response to the decline in mortgage origination market volumes while ensuring our operations maintained leading performance levels with our clients,” he said.

Reviewing the results, Toner pointed to the topline of $58.2 million, which was under the consensus estimate at $71.7 million, while the EBITDA loss of $1.1 million and adjusted EPS of $0.00 were also lower than the expected positive $0.5 million and $0.01 per share respectively.

By segment, Toner noted that the company’s US Appraisal business was down 51.7 per cent year-over-year, while US Title was down a full 81.7 per cent, as REAL continues to deal with mortgage volumes at decreasing levels. The company’s Canadian market also declined by 19.8 per cent to $10.3 million.

“According to the Company, US total mortgage origination volumes were down roughly 42 per cent from FY21, driven by a 61 per cent decline in refinance mortgage origination volumes,” Toner wrote.

“Despite the decline in revenues, net revenue margin beat, and the Company continues to limit losses, which we believe will limit the investor reaction to the miss,” he said.

With the update, Toner reiterated an “Outperform” rating on REAL and an C$8.00 target price, which at press time represented a projected one-year return of 90.0 per cent.