Real Matters Inc T.REAL

Alternate Symbol(s): RLLMF

Real Matters Inc. is a Canada-based technology company. The Company provides network management services platform for the mortgage and insurance industries. It provides residential real estate appraisal and title services to mortgage lenders in the United States of America and residential real estate appraisal and insurance inspection services in Canada. Its segments include U.S. appraisal, U.S. title, and Canada. The U.S. Appraisal segment provides residential mortgage appraisals for purchase, refinance, home equity and default transactions through its Solidifi brand. The U.S. Title segment serves the title market by providing various title services for refinance, purchase, home equity, short sale and real estate owned transactions to financial institutions through its Solidifi brand. The Canadian segment’s primary service offerings include residential mortgage appraisals for purchase, refinance and home equity transactions provided through its Solidifi brand.

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Real Matters Inc

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Post by retiredcfon May 05, 2020 8:28am

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Post# 30986799

TD

Real Matters Inc.

(REAL-T) C$15.97

Q2/F20 Preview: Strong Origination Volumes Amid the Pandemic

Event

Q2/F20 Results: Wednesday, May 6, 2020, before markets open.

Conference Call: 10:00 a.m. ET; (833) 247-5856 or (647) 689-4232; passcode: 669709.

Impact: NEUTRAL

We estimate total net revenue of $33.2mm, up 65% y/y. We forecast EBITDA of $11.3mm, or 34.1% EBITDA margin, up from 13.8% y/y. We estimate total gross revenue of $105.2mm, up 66% y/y. We expect both U.S. Appraisal Management (AM) and U.S. Title & Closing (T&C) to demonstrate strong y/y growth of 59% and 100%, respectively. We estimate EPS of $0.09, up 673% y/y this quarter.

We remain optimistic amid the pandemic. The pandemic has resulted in multiple interest rate cuts by the Fed since March. Freddie Mac estimates that the 30-year mortgage interest rate has dropped to an all-time low of 3.23% as at April 30. The MBA and Fannie have raised their C2020 mortgage origination volume estimates by 27% and 22% in April, from January estimates, primarily driven by expectations of robust refi volumes. Management noted that there was strong origination volume in March and April, higher than any week in 2019. This is reflected in Tier-1 lenders' (T1s) origination volumes, which have increased by 60% y/y, on average.

Capacity constraints set up a potential multi-year opportunity. Our last updated estimates from March 12 assumed that there would be a strong influx of refi volume in F2020, while F2021 would have a difficult y/y comp. Since then, we have seen lenders attempt to manage the significant backlog by raising interest rates to defer applications. As a result of these capacity constraints, we believe that the volume could be spread out over a longer time-period than we had initially anticipated and we could see significant spillover into F2021. This could be positive for Real as it sets up a multi-year growth opportunity, rather than a single large bump this year. Management believes that it could take 2-3 years to work through the potential refi volume.

TD Investment Conclusion

We are maintaining our BUY rating and C$18.00 target price. We remain confident in Real's outlook, given the low U.S. mortgage interest rate environment, strong operating leverage, and minimal impact of the pandemic on its operations. We will look to revisit our target price and estimates following the quarterly results.