The analyst attended a reception hosted by the company at the Mortgage Bankers Association Confnerence this week. He says he continues to hear good things about the company, but notes the backdrop is somewhat grim.
“Overall, customer and partner sentiment around Real Matters Solidifi brand remained positive,” Tse wrote. “That said, and not surprisingly, the overall mood from customers and partners was one of caution for near-term mortgage origination volumes given the continuing scarcity of inventory, lower home affordability and rising rates. Aside from those obvious macro challenges, the takeaways were: (1) continued growing interest in the Real Matters Solidifi platform albeit with elongated sales cycles; (2) Title & Close (T&C) is also subject to elongated sales cycles; (3) potential wallet share gains still exist in the existing base; and (4) potential new innovations in LLMs to further fortify Real Matters platform value.”
In a research update to clients October 17, Tse downgraded REAL from “Outperform” to “Sector Perform” and cut his price target from $8.50 to $7.00. His new target implied a return of 23 per cent at the time of publication.
The analyst thinks REAL will post Adjusted EBITDA of negative $2.5-million on revenue of $167.2-million in fiscal 2023. He expects those numbers will improve to EBITDA of positive $4.9-million on a topline of $215.9-million the following year.
“Bottom line, while the Company continues to execute well on what’s within its control, it appears the market backdrop has become more challenging with a material turn in rates (and volumes) looking unlikely near term,” Tse concluded. “Given the +36% increase in REAL’s stock price YTD, largely from an expansion in valuation care of moderating rate expectations, the name is looking reasonably valued against that elongated turn.”