PropTech Group Ltd: Well on Track to Meet Our FY22 Forecasts

Equity Bottom-Up

18 Views27 Oct 2021 08:00

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SUMMARY

PropTech Group Ltd

Well on track to meet our FY22 forecasts

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 a 99% year-on-year increase in cash receipts to $4.98m for Q1FY22 and a 23% increase over Q4FY21. PropTech Group generated positive operating cashflow of $0.61m, up 48% y-o-y, although lower than the $0.76m operating cashflow delivered in Q4FY21, due to additional operating costs from the acquisition of Eagle Software and the investment in research and development. PropTech now has 41% of real estate agencies across the combined Australian and New Zealand market using one or more of its products. The company also announced that annual recurring revenue (ARR) was $16.3m at the end of Q1FY22, up from $12.4m in Q4FY21. This puts the company well on track to meet our FY22 revenue forecast of $18.1m. PropTech Group is trading at a significant discount to its listed ASX property technology peers. In our view, this gap should narrow as the company demonstrates continued growth in ARR and marketshare.

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. 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 revenue (~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 Q1FY22 cash receipts, positive operating cashflow
PropTech delivered strong growth in cash receipts and operating cashflow in Q1FY22 while also absorbing the acquisition of Eagle Software and entering into a joint-venture agreement to launch PropPay. Cash receipts almost doubled over the pcp and increased 23% on the previous quarter. The company reported its third consecutive positive quarterly operating cashflow. The Eagle Software acquisition increased PTG’s share of ANZ real estate agents using one or more products to 41% at quarter end, compared with 34% at the end of Q4FY21. The company also completed a $15.5m capital raise in the quarter (before share-issue costs) and ended Q1FY22 with $14.8m in net cash after paying a contingent consideration of $2.9m to Domain Holdings (ASX:DLG) in relation to the retention of a key customer licensing the VaultRE customer relationship management (CRM) platform for at least two years.

Base case DCF valuation is $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 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. As we highlighted in our recent 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 ~54%.

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