REA Group Earnings: Overearning as Australian Real Estate Activity Remains Elevated

We raise our fair value for wide-moat REA Group to AUD 126 from AUD 123 previously, following first-half results. The company has outperformed our expectations, as Australia is seeing continued new listings growth, despite listing levels last year having already been significantly elevated compared with long-term trends. REA Group estimates that new buy listings were around 8% higher during the first half, compared with the previous seven-year average. However, we believe this seven-year average itself also represents somewhat elevated levels, as it included the booming housing market period of fiscal 2021-22. Regardless, new listings growth slowed during the half, from 12% above the seven-year average in the first quarter to just 3% in the second quarter. We therefore continue to forecast a normalization, albeit at a slower pace. We have adjusted our immediate near-term forecasts up and pushed back our normalization to fiscal 2026-27. Our forecasts assume a gradual normalization and don’t include a potential increase in listings from distressed selling.