PropTech Group Ltd - Better-Than-Forecast Underlying H1 FY22 EBITDA

Equity Bottom-Up

957 Views17 Feb 2022 08:00

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SUMMARY

PropTech Group Ltd

Better-than-forecast underlying H1 FY22 EBITDA

PropTech Group (ASX:PTG) is a property technology SaaS company with a fast-growing and market-leading position in customer relationship management (CRM) systems with Australian and New Zealand residential real estate agents, and a small but growing position in the UK market. The company has reported H1 FY22 revenue growth of 98% to $9.7m and a 71% increase in Annual Recurring Revenue (ARR) to $17.0m. Gross profit margin increased 200 basis points to 92%. Pleasingly, underlying EBITDA was a better- than-forecast positive $0.8m, versus our expectation for a $1.0m operating loss for the period. The company recorded a net loss, excluding one-time items and non-cash payments, of $0.1m, ahead of our forecast for a $2.1m net loss. Organic revenue growth for the period accounted for 41% of the 98% growth reported, with acquisitions made through the course of the year contributing the rest. We have upgraded our forecasts for FY22 and FY23 on the back of this result, reflecting the current ARR and the better-than- forecast gross profit and EBITDA margins. Our upgrade has resulted in a lift in our DCF- derived base case valuation to $1.27/share, previously $1.10/share. PropTech Group continues to trade at >50% discount to its listed ASX property technology peers. This gap should narrow as PTG delivers continued growth in market share and earnings.

Business model
PropTech Group operates a subscription-based, software-as-a-service (SaaS) model for both business-to-business (B2B) and business-to-consumer (B2C) customers in the residential property markets in Australia, New Zealand and the UK. PropTech is also leveraging its role in the real estate lifecycle to develop new revenue streams from payments (via its PropPay JV) and ancillary services. The company generates the bulk of its sales revenues (~90% of revenues in FY21) from real estate agents. Around 41% of agency offices in Australia and New Zealand use one or more of PropTech’s products. In the UK, it’s just under 1% of agents. We estimate PropTech’s share of transactions flowing through its platform is closer to 50% of the ANZ market.

Strong revenue growth and ARR up 71% to $17m
PropTech delivered a better-than-forecast H1 FY22 result from both a top-line and operating profit perspective. Operating revenue increased 98% to $9.7m, with 41% of that growth coming from like-for-like operations. ARR increased 71% to $17.0m, which was ahead of our forecasts, and gross profit for the half increased 101% to $8.9m as a result of an expanded margin. Underlying EBITDA for the half was $0.8m, down 44% on the previous corresponding period (pcp) as a result of absorbing additional costs from its three acquisitions in 2021 and investing in people and products to capture a greater share of the real estate SaaS market. The product and development team increased to 42 in the half, up from 14 in the same period in FY21, with total employees now at 125 across the group, compared with 51 at the November 2020 relisting, and this is reflected in the 200% increase in employment costs half-on-half.

Base-case DCF valuation is $1.27/share (prev. $1.10/share)
We have valued PropTech Group using the discounted cashflow method given its relatively early stage in its lifecycle. Our base-case valuation has increased to $1.27/share, previously $1.10/share, and implying an EV/Sales multiple of 9.0x FY22 revenues, putting it in line with its domestic peers. As we highlighted in our September 2021 initiation report Delivering a new way to play real estate, PTG is trading at a significant discount to its listed domestic peers. This discount currently sits at ~55%.

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