RESEARCH: Domacom – FUM Potentially Up By $300M

FYI | Sep 10 2020

Pitt Street Research finds DomaCom is progressing well with respect to the development of its new products

By Pitt Street Research

Domacom – FUM Potentially Up By $300M

DomaCom Ltd ((DCL)) is progressing well with respect to the development of its new products. The company completed the acquisition of its first property under the Rent-to-Own (RTO) offering.

For the essential worker RTO product, DCL has partnered with a tier 1 community housing provider and is on track to launch the product in Q4 2020.

DCL also received confirmation from the Australian Tax Office regarding the downsizer legislation, which is expected to drive the growth of its Senior Equity Release product.

More recently, DCL has been pursuing an acquisition of an Australian agribusiness which if successful could potentially add $300M to its FUM.

Resilient business model in the face of COVID-19                   

Notably, DCL has made all these advancements, including syndication for its RTO product, against the backdrop of the COVID-19 pandemic.

In our view, this highlights the resilience and robustness of DCL’s business model. Additionally, we believe the impacts of the pandemic, such as higher vacancy risk, lower interest rates and decline in property prices, have the potential to play out in the favour of DCL’s business model.

Reiterating valuation of $0.30 – 0.41 per share

Although FUM of $71.4M as of 30 June 2020 came in below our expectations, the potential addition of $300M to FUM as a result of the recent AAGL acquisition should significantly beat our initial growth forecasts.

Accordingly, we reiterate our valuation of $0.30 – 0.41 per share. As DCL progresses closer to completing the acquisition, we will revisit our valuation and make the appropriate adjustments.

Key risks we see at this stage include: (1) M&A integration risk; (2) AAGL not performing to expectations and (3) continuing execution across product innovation and implementation.

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