Rent.com.au Ltd: Transitioning from Search to Transactions

Equity Bottom-Up

590 Views23 Feb 2021 08:00

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SUMMARY

Rent.com.au Ltd

Transitioning from search to transactions

Rent.com.au Limited (ASX:RNT) is a purpose-led company seeking to empower home renters through their rental profile, rental bond and payments and through a growing number of aligned transactional services. The company has been listed on the ASX since June 2015, at the time raising $5m at $0.20/share to give it a market capitalisation of $17.6m. FY20 was a transformative year for the company, during which it partnered with AGL Energy (ASX:AGL) to provide easy access to utility connections, launched its buy-now-pay-later (BNPL) RentBond product to help renters bridge bond rental costs between properties, and forged a partnership with digital payments platform Novatti (ASX:NOV) to provide a digital wallet for rental payments. This soon-to-be- launched product, RentPay, will extend the company’s relationship with renters into the life of the tenancy, and represents an opportunity for Rent.com.au to deliver other payments products such as utilities bill smoothing and insurance payments. Longer term, RentPay has the potential to provide banking and finance products and to this end has recently forged a relationship with ANZ Bank (ASX:ANZ). Operationally, RNT is also transforming, with a 27% year on year (YoY) lift in quarterly revenue and positive operating cashflow from the core portal business reported in Q2 FY21. The company has also secured a strategic investor in tech entrepreneur Bevan Slattery, who acquired a 10.07% stake in the company as part of the recently completed $2.75m share placement. We initiate coverage with a base case valuation of $0.35/share and see considerable upside in the opportunities presented by the rollout of RentPay.

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 soon-to-be-launched RentPay app platform will allow 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.

Profitable core business, RentPay expected to drive growth
Rent.com.au delivered a 27% year on year increase in quarterly revenue to $0.73m in Q2 FY21, following a record month in October and strong advertising sales in what is seasonally the slowest quarter. The core rent.com.au portal business delivered its second consecutive quarter of positive EBITDA of $0.007m. The company ended the quarter with $1.8m cash and has subsequently undertaken a $2.75m share placement at $0.05/share.

Base case DCF valuation is $0.35/share
We have used the discounted cashflow methodology to value Rent.com.au using a WACC of 12.0% (beta 1.7, terminal growth rate of 2.2%) and this derives an equity value of $0.35/share on the current share count. If we include in the money options and performance rights, the valuation is $0.32/share. Our model is predicated on RentPay securing a 20% share of the total rental market by FY30 and median ARPU per month of $8.83, which in our view is entirely achievable. We have also dimensioned the opportunity at a higher penetration rate and higher ARPU which represent considerable upside to our base case.

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