Domain's Catalano resigns
Recommendation
Newly listed Fairfax Media spin-off Domain Holdings today announced the departure of chief executive officer Antony Catalano. The timing is bad, to say the least, given that Domain only listed on the ASX in November. The Sydney-based role was apparently placing too much pressure on Catalano's family in Victoria.
Catalano is very well-respected, so his departure is a loss. He is largely credited with building Domain into a credible second player in online property classifieds behind REA Group.
With more than 700 employees, though, Domain is not a small company. Companies of this size are always bigger than the chief executive, Domain has a senior management team in place and chairman Nick Falloon has stepped into the Executive Chairman role for the time being.
Domain also announced a trading update. Unaudited first half results show revenue growing at 13%, which is consistent with our expectations at the time of Domain's listing bonanza (although perhaps a tad lower than some of the more bullish broker expectations).
The market has been spooked, with the stock losing 12% and more than $200m in market capitalisation today. What should you do?
We're lowering our price guide to account for the uncertainty, but Domain looks reasonable value for what is a high quality business. At $3.00, our new maximum Buy price, the stock would be trading on a prospective 2019 enterprise value to earnings before interest, tax, depreciation and amortisation multiple of 13.5.
That's well below REA Group's forecast multiple of 18.5 despite Domain's faster expected growth over the next few years. It's also below the multiples of other Australian online classifieds companies, despite the pricing power and growth potential of the property sector and Domain itself. Like its peers, Domain should produce strong free cash flow; we're expecting a free cash flow yield exceeding 4% in 2019.
While our price guide has come down, today's share price fall means Domain earns an upgrade. Please refer to our previous reviews Domain's listing bonanza and Fairfax's Domain flies free for additional information about the business, including the potential risks. BUY up to $3.00.
Disclosure: The author owns shares in Fairfax Media and Domain Holdings.