REAL stock has double-digit upside, National Bank says

Following Q4 reports he describes as “mixed” National Bank Financial analyst Richard Tse has maintained his “Sector Perform” rating while cutting his price target from $7.00 to $6.50 on Real Matters (Real Matters Stock Quote, Chart, News, Analysts, Financials TSX:REAL).

On November 17, REAL reported its Q4 and fiscal 2023 results. The company posted Adjusted EBITDA loss of $600,000 on revenue of $42.2-million, a topline that was down from the $46.0-million the company delivered in the same period a year prior.

“We were pleased to report adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] of $600,000 in Q4, ending the year with another positive quarter, notwithstanding that U.S. mortgage origination volumes in fiscal 2023 were the lowest on record in the last 28 years,” said CEO Brian Lang. “We launched six new clients, and new channels in U.S. appraisal and U.S. title, including the second channel with our Tier 1 lender in U.S. title, in the fourth quarter. We also maintained a strong balance sheet, with more than $42-million in cash at year-end and no outstanding debt. In fiscal 2023, Real Matters focused on preparing for scale by optimizing our network, platform and our team, permanently transforming our cost base and making the business more efficient. We have a greater share of our clients’ business in more channels and across more products than ever, which will help accelerate our results when the market turns. We remain focused on our fiscal 2025 objectives.”

Tse says REAL had some wins against a tough backdrop.

“Real Matters reported mixed FQ4 results relative to our (NBF) and consensus estimates,” the analyst wrote. “Net revenue came in at $11.2 mln (-22.2% Y/Y; -7.4% Q/Q) vs. our $12.1 mln estimate (Cons. $11.6 mln), with sequential (Q/Q) revenue declining after previously posting two consecutive quarters of positive sequential growth. Yet, in the face of a challenging top line, Real Matters continued to hold the line on opex, positioning itself for considerable operating leverage when the market turns. In the quarter, Adj. EBITDA came in at $0.6 mln versus our $0.5 mln (Cons. $0.6 mln). Looking ahead, forecasts from the Mortgage Bankers Association (MBA) suggest in CQ1’24 (FQ2’24 for REAL), the market could be heading towards a (positive) inflection in 2024. While that could transpire, it’s too early to call for Real Matters.”

Tse thinks Real Matters will post Adjusted EBITDA of $3.6-million on revenue of $183.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $16.2-million on a topline of $234.3-million the following year.

Tse new price target implied a return of 24.8 per cent at the time of publication.