Domain Holdings Australia Limited (DHG): Home Sweet Home

Domain Holdings Australia Limited (DHG) is an online property marketplace that provides a range of solutions, services and data to consumers, agents and other stakeholders with an interest in the Australian commercial and residential property markets. Domain offers services and solutions to consumers and agents at different points of the property lifecycle, including home loan and insurance brokerage, flexible payment solutions and residential utilities generation. We raise our fair value estimate for Domain by 6% to $2.50 per share.

We still believe property transaction volume will come off over the long-run but are now more constructive on the near term. The company is making some progress on improving cost efficiency. For FY23, in line with our expectations, lower listing volume from a return to trend growth weighed on Domain's profitability while costs grew modestly from a high base following elevated volume in the pandemic. This resulted in falling earnings per share to $0.05 from $0.09 in FY2022. The shares sold off considerably with earnings but continue to be over-valued, in our view, reflecting an overly optimistic belief in Domain's ability to continually raise prices in the future. To justify market pricing, yield growth would need to be much higher than our mid-cycle forecast of 9%, implying Domain captures an untenable take rate of property sale prices. Domain's digital business segments, which account for almost all earnings, faced a challenging year. Rapid interest-rate rises in FY23 drove substantial declines in listings. Upward movement on the property ladder slowed, particularly in Domain's key markets of Sydney and Melbourne, which are more expensive.