Domain [ASX:DHG] Shares Flat on Increased Revenue but Sliding Profits

Domain Holdings [ASXHG], the Australian real estate marketing giant, shared ongoing property-selling challenges when it reported its half-year 2023 results, tainted by lower consumer sentiment on raised rates.

The challenging market conditions have left Domain with a set of financials that leave little to be desired. Total revenue was up 6.5%, but the NPAT fell by 38.9% to $15.9 million, down from $26.1 million the year before.

The group reported an interim dividend for 2023 of 2 cents a share, fully franked.

DHG shares were mostly flat following its half-year announcement, trading at $3.09 a share.

Domain’s share price may have gone up 3% in the past month, but it is still trending in the red by 33% over the last 12 months.

Source: Tradingview.com

Domain warns of continuing property market tension

DHG said that there are continuing challenges overriding the industry in the second quarter, impacting half-year results for 2023’s period ending December 31, 2022.

Domain reported its revenue went up by 6.5%, from $175.3 million to $186.6 million. Net profit after tax decreased 38.9% from $26.1 million to $15.9 million.

Expenses shifted 20.2%, from $114.3 million in H1 FY22 to $137.3 million, with operating costs up 29%, and EBITDA (earnings before interest, tax, depreciation, and amortisation) slipped as a result, by 19.2%, from $61 million to $49.3 million.

As a result, the group decided to give out an interim dividend of 2 cents a share, fully franked, which was the same as the period before.

In adjusting its EBITDA margin — taking Jobkeeper and Zipline into account — the group moved its margin down from 39.1% to 26.4%.

Domain Chief Executive Officer and Managing Director Jason Pellegrino said the company’s costs went up with a full period of additional acquisition expenses linked to real estate campaign management technology platform Realbase as well as a catch-up period from COVID and investing in growth-related initiatives.

Consumer Solutions’ revenue declined 3% in the downturn in the home lending market impacted by interest rates, and January trade displayed a continuation of a challenging market environment.

Earnings per share had also plummeted by 43.5% from 4.46 cents to 2.52 cents.

Domain sits tight for stability

Domain said it has a line-up of new and upgraded depth contracts that should provide an upside once market conditions stabilise.

The company’s full-year costs guidance has not changed, still $250 million and $255 million. DHG is anticipating EBITDA’s margin to see a low single-digit percentage point reduction on an ongoing cost basis.

Mr Pellegrino commented:

‘With the adjustments that we have made to the cost base, and the reducing impact of acquisition related expenses, we expect H2 costs to reduce materially from H1, and also to reduce year-on-year. We are strongly positioned to continue to deliver the appropriate balance of investment and cost discipline to support our long-term commitment to margin expansion.’

Pellegrino also explained that the current property market challenges are susceptible to ‘dramatic change’ in relation to global inflation and geopolitical risks, as well as the recent interest rate hikes.

He pointed out the company has already weathered major events over the past four years, including the Royal Commission and COVID.

Regards,

Mahlia Stewart,

For Money Morning

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