Real Matters is heading to $9, says ATB

A downturn in the real estate market has taken its toll on mortgage lending and insurance industry platform Real Matters (Real Matters Stock Quote, Charts, News, Analysts, Financials TSX:REAL), both in terms of business and the stock price, which is down by about two-thirds over the past two years.

But a bottom has been reached, according to ATB Capital Markets analyst Martin Toner, who provided an update to clients on REAL on Thursday where he reiterated an “Outperform” rating on the stock and C$9.00 target price, which at press time represented a projected one-year return of 53 per cent.

Real Matters provides appraisal and title services to mortgage lenders in the United States and appraisal and insurance services in Canada. Field professionals like appraisers, notaries and property inspectors use REAL’s platform to compete for mortgage volumes provided by Real Matters clients, which include about half of the top 100 lenders in the US which account for about 84 per cent of total lender spend on appraisal and title services. In Canada, REAL has the majority of the big banks as customers. 

“We estimate the Company has roughly 13 per cent of the US refinance appraisal market, 5% of the US purchase appraisal market, and one per cent of the US title market. Its FY2025 market share targets for those three markets are 17 per cent -19 per cent, 7 per cent – 9 per cent and 6 per cent – 8 per cent, respectively,” said Toner.

It’s been tough for REAL, Toner said, as its is a transactional business, and thus, with refinance levels currently at near two-decade lows and industry forecasts for 2023 projecting it to be the worst year on record, the impact is plain to see. REAL’s first quarter fiscal 2024 revenues, for one, were 78 per cent lower than two years prior.

But Toner says signs point to a bottom, and with REAL currently having no debt and $42 million in cash, investors should be looking ahead with optimism.

“Given the record spread between the 30-year mortgage rate and ten-year Treasuries, near all-time low refinance activity, and industry forecasts, we believe the US mortgage market and Real Matters’ results have bottomed,” Toner said.

“While it is difficult to for investors to imagine a recovery in refinance volumes given the inflationary, high-rate environment, we believe that a healthy purchase mortgage market at rates above 5 per cent will sow the seeds for a refinance recovery. A steep drop in rates would have the same result,” he wrote.