This tech stock is a great play on mortgage rates, analyst says

ATB Capital Markets analyst Martin Toner says Real Matters (Real Matters Stock Quote, Chart, News, Analysts, Financials TSX:REAL) delivered a steady fourth quarter that reflected ongoing softness in the U.S. purchase market but also demonstrated continued execution in client additions, cost control and balance-sheet stability.

In a Nov. 20 update, Toner maintained his “Outperform” rating and $10.50 price target, calling the prolonged U.S. mortgage downturn a multi-year cyclical opportunity for investors willing to look through near-term volatility.

Markham, Ontario-based Real Matters provides network management services to clients in the mortgage lending and insurance sectors.

Real Matters reported Q4/FY25 consolidated revenue of $46.0-million, essentially in line with ATB’s $45.9-million estimate, with year-over-year and sequential growth of less than two per cent. Toner said the flat performance reflected weaker U.S. purchase activity offset by improving refinance origination volumes. Net revenue of $11.9-million, down 1% year over year, missed consensus at $12.2-million, while net-revenue margin slipped to 25.9%, about 40 basis points lower than last year.

Adjusted EBITDA of $0.1-million was slightly below consensus at $0.2-million. Even so, Real Matters generated $1.8-million in operating cash flow, $1.5-million in free cash flow and $5.2-million in adjusted free cash flow.

“We are impatiently watching for refinance volumes, but impressed with REAL’s execution, adding customers and limiting losses,” Toner said.

In FY25 the company launched 10 new clients across Appraisal and Canada and added seven new U.S. Title clients, including a second Tier-1 lender and the largest U.S. credit union. Toner said the Title pipeline is “the most active it has ever been,” with additional Tier-1, large-servicer and top-50 lender implementations underway.

Net revenue for Q4 included US$8.5-million from U.S. Appraisal (down 6% year over year), US$1.6-million from U.S. Title (up 28%) and US$1.9-million from Canada (up 5%). Appraisal margins dipped to 25.5% from 26.1% in Q3.

Toner highlighted management’s view that the refinance opportunity is expanding meaningfully.

“There are currently 51-million mortgages outstanding in the U.S., with over 12-million carrying interest rates above 6%,” with 50% of borrowers indicating they intend to refinance when rates fall. Historically, even a 50-basis-point decline has triggered sharp volume increases, and Toner believes the company is positioned to deliver operating leverage when that occurs.

Toner lowered his Q1/FY26 and full-year FY26 revenue and EBITDA estimates due to weaker purchase-mortgage trends and limited visibility on the timing of a market recovery. He cut his Q1 net-revenue estimate by $2.1-million and trimmed Adjusted EBITDA by $1.7-million, though he expects sequential improvement in Q1 with revenue up 13% year over year and Adjusted EBITDA rising to $0.7-million from $0.1-million in Q4. For FY26 he reduced net revenue to $58.5-million (down $3.5-million) and Adjusted EBITDA to $9.5-million from $11.2-million, noting that his assumptions incorporate minimal interest-rate relief. FY27 estimates were reduced more materially to reflect ongoing uncertainty in the U.S. mortgage market; he now models $329.6-million in revenue and $41.3-million in Adjusted EBITDA.

Toner said Real Matters’ valuation remains compelling on a mid-cycle basis. He sees mid-cycle EBITDA potential in the $25-million to $50-million range under conservative market-share assumptions and emphasized that Real Matters’ own target operating model contemplates $80-million to $110-million in EBITDA in a normalized market.

“While our forecast for mid-cycle conditions would feature improving conditions below Real’s normal scenario, we believe REAL’s model should encourage investors on the potential magnitude of cash flow if U.S. mortgage markets normalize,” he said.

His $10.50 target is based on a DCF using an 11.5% cost of equity, 2.5% terminal growth and a discounted terminal value of $319-million, representing 61% of total enterprise value and equating to 7.6-times EV/EBITDA and 1.2-times EV/Revenue.

-30-