Tier 1 Client Expansion And Excess Capacity Will Unlock Opportunities

Key Takeaways

• Expansion with Tier 1 lenders and strategic investments aim to grow U.S. Title and Appraisal segments, driving future revenue growth.
  
• Strong financial position with no debt and solid cash reserves enables seizing growth opportunities and maintaining earnings stability.
  
• Declining U.S. mortgage market volumes and rising interest rates are impacting Real Matters' revenue growth and profitability, posing challenges to future financial stability.

Catalysts

A technology and network management company, provides appraisal and title services in Canada and the United States.

• Real Matters is expanding its client base, particularly with Tier 1 lenders and growing its market share in both U.S. Title and Appraisal segments. This increased client onboarding is anticipated to drive future revenue growth as market volumes rebound.
  
• The company observes a significant pool of potential refinance candidates with high mortgage rates. As interest rates decrease, these candidates may refinance, significantly boosting origination volumes and thereby increasing revenue.
  
• Real Matters has excess operating capacity, allowing for strong operating leverage as volumes increase, leading to improved net margins and earnings.
  
• Ongoing investments in the Title business and sales personnel are expected to accelerate market share growth, potentially growing revenue and improving net margins.
  
• The company maintains a strong financial position with no debt and substantial cash reserves, allowing them to capitalize on growth opportunities and maintain operational resilience, leading to improved earnings stability.

Real Matters Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Real Matters's revenue will grow by 19.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.3% today to 6.7% in 3 years time.
• Analysts expect earnings to reach $20.4 million (and earnings per share of $0.26) by about May 2028, up from $5.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.3x on those 2028 earnings, down from 54.5x today. This future PE is greater than the current PE for the CA Real Estate industry at 8.6x.
• Analysts expect the number of shares outstanding to grow by 1.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Real Matters Future Earnings Per Share Growth

Risks

• A decline in the addressable U.S. purchase mortgage origination market led to a decrease in consolidated net revenue from $11.5 million in 2024 to $10.1 million in 2025, indicating potential challenges in maintaining revenue growth.
  
• U.S. Title revenues decreased from $2.5 million in Q1 to $2.3 million in Q2, despite a prior increase due to interest rate fluctuations, which may impact future revenue stability and growth.
  
• Rising interest rates contributed to a decrease in addressable mortgage origination market volumes, which affected refinance origination revenues; this downturn could continue to negatively impact revenue and profitability.
  
• The U.S. Appraisal segment reported an 18% revenue decline year-over-year due to lower market volumes, and a significant drop in adjusted EBITDA from $4.4 million in 2024 to $2.6 million in 2025, signaling potential risks to earnings.
  
• The company faced an adjusted EBITDA loss of $1.9 million, compared with a positive EBITDA of $700,000 in the second quarter of fiscal 2024, primarily due to decreased revenues, pointing to challenges in maintaining profitability.

Valuation

• The analysts have a consensus price target of CA$7.968 for Real Matters based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$11.99, and the most bearish reporting a price target of just CA$6.24.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $302.1 million, earnings will come to $20.4 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of CA$6.02, the analyst price target of CA$7.97 is 24.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.