Real Matters Inc.

Real Matters Inc. (TSX: REAL) provides residential real estate appraisal and title and closing services to mortgage lenders in the United States of America. The Company provides technology-based platform which creates a competitive marketplace where independent field professionals, including appraisers, real estate agents, property inspectors, notaries, abstractors and other closing agents, compete for volumes provided by the clients.

Q3FY20 Financial Highlights: REAL impresses with its quarterly results, wherein the Company posted revenues of USD 118.09 million compared to USD 91.425 million in Q3FY19. The increase was underpinned by significant growth from the U.S. Appraisal segment and U.S. Title segment, while a decline in Canada segment remained a drag. The quarter witnessed higher traction from the U.S. economy due to the decline in the interest rate by 50 to 75 basis points as compared to the rate borne on their current mortgage. Income before income tax expense soared to USD 10.456 million, significantly higher from USD 4.718 million in the previous corresponding period (pcp), thanks to the higher income while higher operating expenses, amortization costs, net foreign exchange loss remained a drag. Net income stood higher at USD 6.285 million as compared to USD 4.434 million in pcp. The Company ended the quarter with a cash and cash equivalent of USD 109.456 million while total assets stood at USD 230.423 million in pcp.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Closures of county courthouses throughout the U.S. due to COVID-19 has created challenges for the business, as this created some challenge to search the title and complete recordings in those counties. Continuation of lockdown might cause the extent of the same challenges in the operations.

Valuation Methodology: Price/CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of REAL stood resilient in the recent past and soared ~114% and ~168% in the last six months and nine months, respectively. Investors should note that the stock was trading above its 200-days simple moving average of CAD 16.88, which indicates a bullish-pattern. The company operates through a unique business model and is immune to the economic cycle. Persisting low-interest rates are likely to increase traction, which is a key positive. The company has a wide distribution network of appraisers, abstractors, notaries, closing agents and inspectors, which has helped the company to find a qualified field professional for the majority of transactions from its Clients. The company Launched three new lenders in U.S. Appraisal and four new lenders in U.S. Title. Also, the company purchased 64 thousand shares under our normal course issuer bid (“NCIB”) at a cost of USD 432 thousand, which shows the group’s confidence in its business. The stock appreciated ~97% in the last three months and currently trading towards the upper band of its 52-weeks trading range of CAD 7.74 and CAD 31.91. We have valued the stock using the P/CF based relative valuation approach and arrived at a target price, which suggests a higher single-digit upside side potential (in % terms). For the said purpose, we have considered peers like CGI Inc, Kinaxis Inc, and Open Text Corp etc. Hence, considering the aforesaid facts, current price movement, we recommend a ‘Hold’ stance on the stock at the closing market price of CAD 29.80 on July 31, 2020.

REAL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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