Real Matters Inc.

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

Key Highlights:

• Favorable market conditions: Recently, the company reported improved performance from its U.S. Appraisal segment aided by higher market volumes, net market share gains, and new client additions. Notably, in 9MFY21, the group reported a 9.7% y-o-y growth from its addressable mortgage origination market while its origination revenue was up by 14.2% on y-o-y basis.
• Strong growth from U.S. Title Segment: The U.S. Appraisal Segment has contributed handsomely to the company’s growth in the recent past. Notably, the company has entered into the S. Title Segment in 2016 with the acquisition of Linear Title & Closing Ltd. and has delivered exponential growth since then by leveraging the company’s existing network within the U.S. Mortgage industry. We expect the momentum to continue in the coming days, supported by a healthy performance from the U.S. Title segment.
• Canada market reported promising results: The group reported encouraging performance from its Canada segment, wherein revenue soared 82% on y-o-y basis to USD 39.585 million in 9MFY21, supported by due to higher appraisal volumes serviced from market share gains coupled with higher market volumes. Adjusted EBITDA stood at USD 3.762 million in 9MFY21, significantly higher than USD 2.050 million in pcp.

Q3FY21 Financial Highlights:

• REAL announced its third quarter result, wherein the company posted its revenue of USD 129.398 million, climbed from USD 118.090 million in the previous corresponding period (pcp). The growth was driven by higher income from the U.S. Appraisal and Canadian segments due to higher addressable origination market volumes, coupled with net market share gains along with new client additions.
• The quarter was marked by a higher operating expense (USD 27.306 million v/s USD 23.500 million in Q3FY20) coupled with an increase in transaction costs (USD 90.781 million v/s USD 74.174 million pcp).
• Adjusted EBITDA was recorded at USD 11.783 million, declined from USD 20.893 million in pcp.
• Net income stood at USD 5.262 million, as compared to USD 6.285 million in Q3Y20, primarily due to the higher input costs.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The operation of the company depends upon the current mortgage market situation, which is cyclical in nature and is impacted by several factors, such as broader economic conditions, changes to interest rates, changing regulations etc.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has reported improved working capital management and posted its current ratio of 3.76x in Q3FY21, significantly higher than the industry median of 1.45x. Moreover, cash cycle days stood lower at 1.2 days, as compared to the industry median of 8.4 days. This indicates that the company is managing its short-term liabilities in an efficient over its peers. We have valued the stock using the P/CF-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Information Open Text Corp, Evertz Technologies Ltd etc. Considering the aforesaid facts, we give a ‘Buy’ rating on the stock at the closing price of CAD 9.55 on October 20, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on October 20, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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