Real Matters Inc. (TSX: REAL) is a Canadian network management services provider for the mortgage lending and insurance industries. The group's platform combines proprietary technology and network management capabilities with tens of thousands of independent qualified field agents.

Key Updates:

• Poor Operating Performance: In Q2FY22, the company reported a lower revenue of USD 94.9 million, which is significantly lower than USD 128.8 million in pcp. This was primarily due to poor performance from the U.S. Title segment. Income from this segment stood at USD 10.7 million v/s USD 40.0 million in pcp. Moreover, the group reported its net loss of USD 0.5 million, as compared to a net profit of USD 11.6 million in pcp, due to prevailing cost pressure.

• Depressing margins: In Q2FY22, the company reported its gross margin and operating margin of 25.5% and 0.8%, respectively, as compared to the industry median of 30.4% and 7.4% respectively. This indicates that the company is battling with higher input costs scenario. Moreover, the company reported a negative net margin of 0.5% in Q2FY22, as compared to the industry median of 6.1%.

• Increase in Accumulated Deficit: At the end of Q2FY22, the company reported an accumulated deficit of USD 95.6 million, which increased from USD 94.1 million in Q4FY21. A rising accumulated deficit is an alarming signal and hinders the operational efficiency.              

Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group

Stock Recommendation:

In Q2FY22, the group reported a sluggish performance primarily due to significantly lower income from U.S. Title segment due to a lower refinance market volumes across North America Geography. We expect the above trend to continue and would likely to pose a threat to the company’s overall operations.

We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). For the said purposes, we have considered peers like Information Services Corp, Open Text Corp etc. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of REAL at the last closing price CAD 5.22 on May 04, 2022.

One-Year Technical Price Chart (as on May 04, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV

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