Property settlement giant sees shares tumble after revealing a $21.8 million loss
Property settlement giant PEXA has experienced a significant drop in shares after revealing a loss of $21.8 million in profits.
The decline comes despite a surge in refinancing activities, as a collapse in new property purchases negatively impacted PEXA's financial performance, according to a report by The Australian. The company's profit was in stark contrast to the $21.9 million profit achieved in 2022, primarily due to lower-margin transactions and investments in new business ventures that have weighed on the property conveyancing and settlement player.
PEXA saw a 26% decrease in operating earnings, which amounted to $98.7 million, The Australian reported. This decline was driven by a $28 million reduction in Australian settlement volumes, as well as an $8 million slump in the refinance mix and a $6 million impact resulting from a cyber incident at Optima Legal. In addition to the margin crunch, overall revenue only increased by 1%, reaching $283.4 million, as PEXA cited the cost of investments made in the business.
Furthermore, free cash flow plummeted by 52% compared to the previous year, totaling just $14 million. This decline reflects the increased costs associated with PEXA's investments, which amounted to $51 million for international expansion and an additional $22 million for digital growth, according to The Australian. PEXA's expansion into the United Kingdom has already commenced, with the company reporting positive progress in the UK market.
Read next: New loans down, refinancing up – PEXA
PEXA's CEO and group managing director, Glenn King, acknowledged the challenges faced by the company in the 2022-23 financial year but emphasised that the investments and acquisitions made have positioned PEXA to evolve into a multi-brand, multi-jurisdictional network of businesses. The expansion into the UK property market settlement systems marks a significant move for the platform. However, King acknowledged that the last financial year was highly challenging for property markets, with transaction volumes and prices down from the record highs of 2022.
“In the face of these headwinds, the PEXA Exchange again demonstrated its resilience, with the impact of reduced volumes and a shift in mix towards lower-margin refinancing transactions, partly offset by pricing changes and continued growth of usage in Queensland and the ACT,” he told The Australian.
PEXA currently holds 88% of all property settlement transactions in Australia, but it faces competition from Sympli and other companies seeking to enter the market.
To address the uncertainties of the operating environment and the maturity of the business, PEXA plans to implement a productivity enhancement program aimed at maintaining costs at or below inflation levels, The Australian reported. While ongoing challenges in the property market are expected, PEXA anticipates operating earnings margins of 50-55% in the 2024 financial year. The company intends to manage its investments in the Digital Growth business to $70-80 million, with the expectation of breaking even in June 2024. The group margin is projected to remain at 35%.
UBS analysts Scott Russell and Shreyas Patel told The Australian that PEXA's earnings results appear satisfactory but raised concerns about the cash strain resulting from the UK and PDG (Property Data Solutions). While the operating earnings exceeded expectations due to volumes and margins in the domestic Exchange, non-operational costs, writedowns, and tax were substantially higher than forecasted. The analysts highlighted the significance of these lower quality items, expressing potential concerns regarding headline profitability and the ongoing strain of PEXA's UK and PDG operations.
Since its listing on the ASX in 2021, PEXA, which was spun out of Link Group, has faced a volatile market journey, with shares trading well below its IPO price of $17.13. On the day of the announcement, PEXA's shares initially fell by as much as 9.53% at market open, later recovering to a 6.2% decline, with a decrease of 78 cents to $11.81 by 2:45pm, The Australian reported.
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