Trade Me (TME)

Fat Prophets

Tuesday 12th August 2014

Sharechat.co.nz – Hot Stock

Fat Prophets

Trade Me (TME)

What’s new?

The Trade Me share price has been under pressure over the past two months as a result of some transitional headaches regarding the New Zealand online marketplace’s new pricing structures for real estate listings. However, following feedback from estate agents around New Zealand, the company has announced changes to the pricing model that will be rolled out to ensure that the Trade Me property portal maintains its dominant market position within the online real estate classified listing space.

The company recently confirmed that they are making several adjustments to their fees model. The original changes saw the implementation of a $159 fee per property. However, this has since been adjusted to include the availability of an ‘all-you-can-eat’ model, offering businesses a $999-$1399 per month package for an unlimited number of listings. And properties with a valuation of less than $450,000 will now only attract a one off listing price of $99 for real estate vendors.

The concessions made to real estate agents and vendors in New Zealand look to be a wise move. Trade Me sees approximately three times the amount of web traffic of their closest rival, realestate.co.nz. This is a huge advantage to Trade Me and is reason to ensure that a mutually beneficial relationship exists with New Zealand vendors, particularly when rivals like realestate.co.nz offer ‘all-you-can-eat-fees’ for $225-$300 per month.

Head of Trade Me Property, Nigel Jeffries, recently confirmed that the company was “willing to work alongside real estate agents and vendors” to ensure value for both parties. We expect that this acknowledgement and the adjustments to the fee structure will see a positive recovery in the number of listings on the portal for the remainder of 2014.

Outlook

New Zealand has been painted as having a ‘rock star’ economy and Trade Me is well placed to benefit. The company also recently reported 19 percent growth in job listings in the April-June quarter compared to the same period last year. Growth was particularly strong for roles in the trade (+32%), construction (+39%) and transport (+29%) sectors. Regionally, Auckland (+21%), Canterbury (+21%), and Wellington (+15%), have remained robust, while the Waikato district also impressed with job ad growth of 24%.

The continued demand for skilled labour, particularly in the earthquake affected Christchurch area, is not likely to weaken anytime soon. This coupled with the ever improving performance of the New Zealand employment market puts Trade Me in the box seat when it comes to employment classifieds revenues.

Price

The shares have been under pressure in recent months but look to have stabilsed above the $3 mark. Investor appetite is starting to firm which is not surprising given recent announcements and the yield appeal of the stock.

Worth Buying?

We have great faith in the Trade Me story, thanks to the company’s dominant market position in the online classifieds space in New Zealand. The company continues to be mindful of competitors and we are pleased to see that they have worked with real estate agents and vendors to resolve the concerns that had arisen.

Following recent weakness, the stock is now trading at 17 times consensus fiscal 2014 earnings estimates and 16 times the year after. These multiples are far from demanding given the dominant position that Trade Me holds in the New Zealand online advertising market. The stock also comes with an enticing 4.7 percent dividend yield.

Disclosure: The author,and interests associated with him, hold shares in Trade Me

Greg Smith is the Head of Research at Fat Prophets.

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