Real Matters Inc

Real Matters Inc (TSX: REAL) is a Canadian network management services provider for the mortgage lending and insurance industries. The Company helps its clients to make intelligent decisions about real estate by leveraging technology to deliver better quality, transparency and efficiency.

Key highlights

• 2025 Performance Targets:The company is setting the following new targets through the end of fiscal 2025. These targets include a bifurcation of U.S. Appraisal market share between purchase and refinance. However, refinance is the only target for U.S. Title, as the purchase and refinance markets each have distinct market factors that drive growth. The group expect an Adjusted EBITDA margin of 65-70% from U.S Appraisal segment in 2025.

Source: Company

• “U.S Appraisal segment” significant contributor in revenues: The company derives 58% of revenue from this segment. The segment witnessed higher market volumes and new client additions, resulting in Net Revenue and Adjusted EBITDA margin expansion.

Source: Company

• Scaling title business: The company continue to scale its title business, moreover, it is making the necessary investments to support its growing footprint and expanding the breadth of operations to meet clients and regulatory requirements. Recently, it opened two new title offices in Dallas and Phoenix.

Financial Overview of Q1 2021 (In thousands of USD)

Source: Company

• In Q1 2021, the company reported consolidated revenues of USD 120.29 million, against USD 103.78 million in the previous corresponding period. The rise in revenues was mainly due to higher revenues from the U.S. Title segment due to higher market volumes for refinance activity, market share gains and net new client additions.

• As a result of strong operating performance, Income before income tax stood at USD 10.24 million, compared to USD 8.68 million in previous corresponding period.

• Net income reported by the company in Q1 2021, stood at USD 7.08 million, compared to USD 5.13 million in the previous corresponding period. The increase was primarily due to higher revenue, market share gains, new client additions and higher market volumes.

Risks associated with investment

Residential mortgage volume in North America is a crucial driver for the Company's financial performance, and cyclical trends and seasonality influence this, which could impact the company’s operations and cash flows.

Valuation Methodology (Illustrative): EV to EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The Company registered higher market volumes and new client additions in its U.S. Appraisal segment, which resulted in Net Revenue and Adjusted EBITDA margin expansion. It is also targeting to double the market share of the U.S. Appraisal segment by FY2025 from its fiscal 2020 market share levels. Moreover, the company is scaling its title business by making the necessary investments to support its growing footprint and expanding the breadth of operations to meet clients and regulatory requirements, we believe this is positive step as they are emphasizing on another segment too. Therefore, based on the above rationale and valuation, we recommend "Buy" rating at the closing price of CAD 15.62 on March 11, 2021. We have considered Evertz Technologies Ltd, Descartes Systems Group Inc, Open Text Corp, etc., as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

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