PropTech Group Ltd: Record Operating Cashflow, Fourth Consecutive Cash Profit
PropTech Group Ltd
Record operating cashflow, fourth consecutive cash profit
PropTech Group (ASX:PTG) is a property technology SaaS company with a fast-growing and market-leading position in customer relationship management (CRM) systems with Australian and New Zealand residential real estate agents, and a small but growing position in the UK market. The company has reported a 116% year-on-year increase in cash receipts to $5.76m for Q2 FY22 and a 16% increase over the previous quarter. PropTech Group generated positive operating cashflow of $0.99m, its best-ever result, a $1.5m turnaround from the statutory operating loss reported in Q2 FY21, up 116% on the adjusted Q2 FY21 operating cash profit and 61% ahead of Q1 FY22. The result exceeded our expectations both from a cash receipts and operating costs perspective. PropTech Group ended the quarter with $14.78m cash in hand. PropTech now has 41% of real estate agencies across the combined Australian and New Zealand market using one or more of its products, having increased its share 12 percentage points from 29% market share at the end of Q2 FY21. The result signals that PropTech Group is well on track to meet our revenue forecasts for FY22 and potentially could beat our EBITDA forecasts for the same period. We maintain our DCF valuation of $1.10/share and note that PropTech Group is trading at >50% discount to its listed ASX property technology peers. In our view, this gap should narrow as the company demonstrates continued growth in market share and earnings.
Business model
PropTech Group operates a subscription-based, software-as-a-service (SaaS) model for both business-to-business (B2B) and business-to-consumer (B2C) customers in the residential property markets in Australia, New Zealand and the UK. PropTech is also leveraging its role in the real estate lifecycle to develop new revenue streams from payments (via its PropPay JV) and ancillary services. The company generates the bulk of its sales revenues (~90% of revenues in FY21) from real estate agents. Around 41% of agency offices in Australia and New Zealand use one or more of PropTech’s products. In the UK, it’s just under 1% of agents. We estimate PropTech’s share of transactions flowing through its platform is closer to 50% of the ANZ market.
Strong Q2 cash receipts, $1m positive operating cashflow
PropTech delivered its fourth consecutive cash profit in Q2 FY22 and its best-ever result, reporting positive operating cashflow of $0.99m, up 61% on Q1 FY22, and 115% on the adjusted operating cashflow reported in Q2 FY21. On a statutory basis, the result was a $1.5m turnaround on Q2 FY21. The company noted that the result benefited from the upsell of additional products to agencies, with the number of products per agency rising to 1.85 from 1.06 at the time of relisting in November 2020. PropTech also officially launched its new property management module during the quarter, noting it had the potential to significantly increase revenue per customer. The company estimates that its current customer base represents an additional annual SaaS revenue opportunity of $15m.
Base-case DCF valuation is $1.10/share
We have valued PropTech Group using the discounted cashflow method given its relatively early stage in its lifecycle. Our base-case valuation of $1.10/share is derived from a WACC of 12.0% (beta 1.5, terminal growth rate 2.2%), and implies an EV/Sales multiple of 15.1x FY21 revenues and 9.3x our FY22 revenues forecast. As we highlighted in our September 2021 initiation report Delivering a new way to play real estate, PTG is trading at a significant discount to its listed domestic peers. This discount currently sits at ~58%.
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