REA Group will acquire all of Mortgage Choice ((MOC)) via a scheme of arrangement. The offer is $1.95 a share. Credit Suisse estimates the acquisition will more than triple the market share of REA Group in the mortgage broking channel to around 7%.
This should provide opportunities for synergies from greater scale and the ability to negotiate better rates. It will also be able to stream leads generated from its platform to a business which is fully owned.
Nevertheless, Credit Suisse warns mortgage broking is a business that is exposed to cyclical fluctuations and, while the scale of the investment is not enough to change the earnings profile, it is marginally dilutive to the multiple.
Rating is upgraded to Neutral from Underperform as the stock is now trading in line with valuation. Target is $136.70.
Sector: Media.
Target price is $136.70.Current Price is $137.45. Difference: ($0.75) – (brackets indicate current price is over target). If REA meets the Credit Suisse target it will return approximately -1% (excluding dividends, fees and charges – negative figures indicate an expected loss).
