At the other side of COVID-19, Real Matters Inc. (TSX:REAL) will have achieved greater scale with a stronger balance sheet with capital to execute on M&A and internal growth priorities
Capital Ideas Media | June 25, 2020 | SmallCapPower: Real Matters describes itself thusly: Real Matters Inc. (TSX:REAL) is a leading technology company that provides services for the mortgage lending and insurance industries. We help our clients make incredibly smart decisions about real estate by leveraging technology to deliver better quality, transparency and efficiency.
(Originally published on Capital Ideas Media on May 12, 2020)
Real Matters went public in May of 2017 around the $12 a share range but really caught fire in the last year, surging nearly 250%, and recently hit all-time highs near the $21 level after posting record fiscal Q2 revenue and earnings results. REAL now boasts a market cap of about $1.7 billion.
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The company’s CEO Jason Smith had this to say about the impact of COVID-19 on its business:
“We believe the lower interest rate environment, which we entered into prior to this pandemic, has created a significant long-term opportunity for us.
We estimate that at least 14.5 million mortgage holders are incentivized to refinance with 30-year mortgage rates at 3% to 3.25%, and that it would take the industry approximately two to three years to cycle through this volume.
Over the next two quarters, we believe that even with potentially higher unemployment, increased forbearance rates, constraints on non-conforming mortgage product availability and reduced property values, higher demand from eligible refinance candidates will continue to fill lender underwriting capacity.
We believe that the ability of lenders to increase their underwriting capacity during COVID-19 remains the most significant hurdle to industry growth.”
Canaccord Genuity has had REAL as a “Top Pick” for a while now and has increased its 2020 and 2021 revenue and earnings forecasts and moved the price target to $25 from $17, giving the stock a projected return of nearly 20%.
Here are some comments on REAL from Canaccord Genuity analyst Robert Young:
“Real Matters continues to outpace market growth driven by new customer wins and wallet share gains in its U.S. operations.
While Appraisal is now at scale, we see growing evidence that Title can eventually become the larger business as planned.
Market growth has been driven by refinance volumes, which Real Matters reports is at a higher level than in any week of 2019 through the end of Q2 with March accounting for 40 per cent of the quarterly net revenue.
This volume has remained strong through April suggesting Q3 strength. While lender underwriting capacity remains a bottleneck for near-term growth, we see it stretching out demand over a longer period.
At the other side of the pandemic, Real Matters will have achieved greater scale with a stronger balance sheet with capital to execute on M&A and internal growth priorities.”
We’re confident in the multi-year refinance opportunity in front of Real Matters in part because of a sizeable rise in our expectations for its Title segment.
We remain cautious on the forecast accuracy through fiscal 2021 and beyond, given the direct relationship with the cyclical mortgage market and interest rates.
However, we remain confident that Real Matters’ solution will continue to gain share, which may limit the impact of future interest rate hikes and/or mortgage market pullbacks.”
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