5 Downgrades $8.75 to $18 PTs Canaccord Genuity analyst Robert Young said the “high level of negative sentiment and growing expectations for a rising rate environment” have weighed on shares of Real Matters Inc. (REAL-T) more than he anticipated.
Accordingly, admitting he was late to adjust his view, Mr. Young downgraded the Markham, Ont.-based tech firm to “hold” from “buy” after resetting his expectations on “the assumption of a more difficult environment in 2022 more than offsetting expected share gains.”
Real Matters dropped almost 14 per cent on Wednesday despite the premarket release of “stronger-than-feared” fourth-quarter results, including net revenue and EBITDA that topped both the expectations of both Mr. Young and the Street expectations.
“Expectations of rising interest rates are a headwind to mortgage origination volumes and, by extension, to Real Matters,” he said. “While purchase-driven volumes appear to be stable, refinance volumes have been in decline. While cash-out refi and last-minute refinance activity in front of a more clearly rising rate environment may be offsets, the worry of rate increases remains a significant obstacle for sentiment on Real Matters stock”
After reducing his our fiscal 2022 and 2023 estimates for both its Title and Appraisal segments “anticipating a more difficult operating environment,” Mr. Young cut his target to $8.75 target from $22. The average is $13.72.
“While we are not confident in our ability to call future mortgage rates, the perception of a more difficult period in the near term limits investor appetite, in our view,” said Mr. Young. “We are less confident on the near term given Real Matters’ focus on 2025 targets, the potential for tax-loss selling, and the likelihood of growth resumption in H2 being low, given a difficult Q1 and Q2 comparison.”
Others making changes include:
* BMO’s Thanos Moschopoulos to $9 from $15 with a “market perform” rating.
“While the quarter was ahead of consensus, interest rates have been on an upward trajectory in recent weeks, creating a strong macro headwind for REAL,” he said. “We don’t view the stock’s valuation as sufficiently attractive given the uncertainty with respect to where industry volumes will ultimately settle out at over the next couple of years, and the potential impact that desktop appraisals may (or may not) have, longer term, on REAL’s business.
* Scotia Capital’s Paul Steep to $13 from $14 with a “sector perform” rating.
“We remain cautious on Real Matters shares given the impact of repositioning the firm’s U.S. title business and cyclicality in the U.S. mortgage refinancing market,” said Mr. Steep. “We would opt to take a wait-and-see approach to the stock in watching for stabilization of the firm’s Title operations, up-take by new Tier 1 & 2 clients in this segment, and improved visibility into the U.S. mortgage refinancing market. Factors we are monitoring in revisiting our view on the shares include the ramp-up of volumes in U.S. Title, given the new Tier 1 client launch, the impact of rising interest rates on U.S. mortgage volumes (in particular refinancing activity) and additional new client wins.”
* Raymond James’ Steven Li to $18 from $25 with an “outperform” rating.
“Most of the reset in our numbers is from Title segment (refi),” said Mr. Li. “Given we are expecting market share gains (from Tier 1 & 2 launches etc), this implies we are factoring in even further deterioration in the refi market from here. It also now factors in the complete rationalization of their Diversified title business ($7-million in revenues in F2021 going to zero). This should effectively scrub the implied refi number pretty close to a baseline refi number.”
* National Bank Financial’s Richard Tse to $10 from $12 with a “sector perform” rating.