PropTech Group Ltd: Delivering a New Way to Play Real Estate

Business model
PropTech Group operates a subscription-based, software as a service (SaaS) model for both business to business (B2B) and business to consumers (B2C) customers in the residential property markets in Australia, New Zealand and the UK. The company generates the bulk of its sales revenue (~90% of revenues in FY21) from real estate agents, and we expect that to increase to ~90% over time. Around 40% of agencies 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.

FY21 result delivers a small taste of the opportunities to come
The restructure of Real Estate Investar and subsequent acquisitions both pre- and post- relisting have transformed the company into a profitable, high growth enterprise. The combined group reported revenues of $11.17m in FY21, gross profit of $10.0m and underlying EBITDA of $1.9m. We are anticipating that FY22 will be a year of investment in product, people and business lines, in particular property management, which represents a bigger revenue opportunity than real estate CRM on a stand-alone basis, and transactional services. We are forecasting a 62% increase in revenue in FY22 (with more half this growth organic and the remainder a result of the Eagle Software acquisition completed July 2021) and an EBITDA loss of $1.8m with a significant (~110%) increase in investment in people. This investment, we anticipate, will be recouped in FY23 and beyond.

Valuation of $168.7m or $1.10/share
In our view, the discounted cashflow methodology is the most appropriate method to value PropTech Group given its relatively early stage in its lifecycle. Our base case valuation of $1.10/share is derived from a WACC of 12.0% (beta 1.5, terminal growth rate 2.2%), and implies an EV/Sales multiple of 15.1x FY21 revenues and 9.3x our FY22 revenue forecasts. The Australia proptech peers are trading on a median forward EV/sales multiple of 9.7x, which applied to our FY22 sales implies a peer valuation of $1.23/share. At the current share price, PropTech Group is trading at a significant (~53%) discount to this peer group.