Shares in real estate listings aggregator Domain Holdings (ASX: DHG) fell by more than 9 per cent today after the company reported a challenging environment in the quarter to date, shaving $164 million off its market capitalisation.
In a trading update released this morning, Domain noted a deterioration in conditions meant the 4 per cent new listings growth delivered in the September quarter was followed by declines of 16 per cent and 22 per cent in October and November respectively.
"Inner city Sydney and Melbourne continue to experience particular weakness, with November listings down 38 per cent and 32 per cent respectively," Domain reported.
"December is experiencing an earlier than usual seasonal decline as agents and vendors defer listings into the 2023 calendar year.
"This trend contrasts with December 2021 when listings activity was unusually long, extending into late December. As a result, December month to date listings are down around 51 per cent in Sydney and 37 per cent in Melbourne."
From an investor perspective, these numbers appear to have more than offset the more encouraging news released by Domain that cost savings initiatives of $21-26 million have been identified and implemented since the November annual general meeting (AGM), translating to around $6 million in expected benefits to the bottom line in the current half.
The group also drew attention to strong results from the more "controllable" elements of the business in the face of cyclical challenges. This particularly applies to yield, which is expected to increase by around 6 per cent in the current half.
"This is in line with the performance delivered in FY20, when listings volumes were impacted by the twin pressures of the Financial Services Royal Commission and COVID-19," Domain stated.
"In addition, trends in new and upgraded depth contracts remain strong, with an 18 per cent uplift in new depth contracts and upgrades signed in November 2022 off a strong prior comparable period; this provides a platform for strong growth when cyclical conditions ease."
Domain is forecasting first half EBITDA of $48 million, down 21 per cent year-on-year from $61 million.
"A material improvement in FY23 H2 EBITDA is anticipated with higher revenue and an additional $15-$20 million cost benefit versus H1," the group stated.
"Revenue upsides are anticipated from recently signed new residential depth and upgrade contracts, new business wins at IDS, growth at Domain Home Loans and strong subscription trends in Agent Solutions.
"In addition, FY23 H2 will benefit from a considerably easier revenue and controllable yield base of comparison than FY23 H1. Given the anticipated H2 revenue upsides and the cost benefits delivered, FY23 EBITDA margins are expected to see a low single digit percentage point reduction versus FY22 on an ongoing cost basis, consistent with the AGM Update."
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