Rent.com.au Ltd: Outperforming Expectations

Business model
Rent.com.au generates revenue from advertising and from rental products, with revenue for the latter derived from RentCheck, which verifies a renter’s identity and checks their record against the National Tenancy Database, from RentConnect which delivers an integrated utility connection and $100 gift card to renters in conjunction with AGL, and from RentBond, RNT’s “move now pay later” product which helps renters bridge the gap from one rental property to another by financing their bond online. The company’s recently launched RentPay app platform allows renters total financial flexibility in terms of how they make their rent payments while giving agents and landlords surety of payments on time. It also aligns Rent.com.au to the tenancy period, giving it an opportunity to engage with its audience for longer and extend the relationship into other revenue lines including insurance, telecommunications, loan and finance products.

Better than forecast quarterly and annual revenues/EBITDA
Rent.com.au has delivered a better than forecast Q4 result in terms of operating costs, quarterly revenue and EBITDA. Cash receipts of $0.86m were in line with forecasts but cash expenditure of $0.98m was lower than our forecast ($1.2m) despite an uplift in advertising and marketing spend. Revenue for the quarter was $0.81m, up 31% on pcp and ahead of our forecast for $0.8m, EBITDA from the core business was $0.059m, the fourth consecutive positive EBITDA for the core business, while the EBITDA loss for the quarter was $0.214m, which was better than our forecast for a $0.28m loss. The total EBITDA loss for the year was $0.69m, an improvement on the $1.1m loss reported in FY20 and better than our forecast for a $0.71m loss. Rent.com.au noted that it had made a strong start to the new financial year despite lockdowns restricting the ability of renters to move house, that the core business was firing and that the release of RentPay was attracting interest from customers, real estate agents and potential partners.

Base case DCF valuation of $0.35/share is conservative
Our base case DCF valuation for Rent.com.au is $0.35/share (12% discount rate, 1.5 beta, 2.2% terminal growth rate). Our valuation is predicated on our expectation that Rent.com.au’s new flagship product RentPay will secure 5% of renters on its platform by FY23 and 20% by FY30. In our view this is entirely achievable and may well prove too conservative. Ongoing evidence of faster than forecast takeup of RentPay together with the expansion of RentPay into other transactional products will likely result in our forecasts being revisited.