Real Matters scores target lift with ATB Capital

It’s been a tough haul over the past couple of years for Real Matters (Real Matters Stock Quote, Charts, News, Analysts, Financials TSX:REAL), a Canadian tech company for the mortgage lending and insurance space which has lost about three-quarters of its value since early 2021. 

But there will be better times ahead for REAL, according to ATB Capital Markets analyst Martin Toner, who provided an update to clients on the company on Sunday where he reiterated an “Outperform” rating and increased his target price from C$8.00 to C$8.50 per share. Toner said signs indicate that a bottom to the mortgage market may have already been hit.

Real Matters, which provides appraisal and title services to mortgage lenders in the US and appraisal and insurance services in Canada, reported its first quarter fiscal 2023 financials last week, generating $38.2 million in revenue, which was down 65 per cent year-over-year and down 34 per cent sequentially. Adjusted EBITDA was $2.3 million versus $8.6 million a year earlier. (All figures in US dollars except where noted otherwise.)

Management focused on the positive in its quarterly commentary, highlighting its operational growth over the quarter, which included the launch of three new lenders in the US Appraisal market, two lenders in the US Title market and two new lenders in Canada. 

“We made solid progress in the first quarter as we continued to win market share, added new clients, and achieved record high Net Revenue margins in our U.S. Appraisal segment,” said Real Matters Chief Executive Officer Brian Lang in a press release.

Toner said REAL’s Q1 revenue at $38.2 million was below the consensus forecast at $44.6 million, while the EBITDA loss of $2.9 million was greater than the expected loss of $2.1 million.

Toner said the March and April period will be key for gauging how and when recovery in the residential mortgage market will take place, but he said recent performance of stocks tied to the US housing market reflect optimism on a recovery.

On Real Matters, Toner said management has been aggressive in its moves to control costs and weather the downturn, with a quarterly drop in cash and equivalents of just $1 million over the fiscal Q1 reflecting REAL’s ability to preserve a healthy balance sheet.

“The Company’s results continued to deteriorate this quarter, and Real Matters has continued to limit losses by rationalizing operations. We believe investors will reward the Company’s ability to preserve its balance sheet amidst a historic downturn and should be encouraged by early signs that the mortgage market has already reached its trough,” Toner wrote.

At press time, Toner’s new C$8.50 target represented a projected one-year return of 74.2 per cent.