ASX:DHG
Domain Holdings Australia Ltd
Investment Summary
The fund managers believe that Domain Holdings Australia Ltd (DHG) presents a mixed outlook. Despite a significant rally of 59% in February 2025 on the back of a takeover bid by CoStar Group, who acquired a 17% stake at a 35% premium, concerns remain regarding DHG's long-term market position relative to REA Group. In their opinion, the recent bid, reflecting an expected boost to around $4.40, signifies potential for value recognition, though NEC AU, the controlling shareholder, has yet to respond. Furthermore, the managers acknowledge that DHG's strong business fundamentals and recent leadership changes, aiming to enhance cost management and capital allocation, present a turnaround opportunity. They see this as part of a broader trend where attractive valuations exist amid ongoing market volatility, creating opportunities for alpha generation in a small cap merger-and-acquisition landscape.
Commentary From The Managers
Blackwattle Investment Partners
28 Feb 2025
$4.34
- DHG was the largest positive contributor to performance during the month.
- DHG rallied 59% in February on the back of corporate activity.
- CoStar acquired 17% of the company at $4.20, a 35% premium to last close.
- CoStar submitted a non-binding indicative proposal to acquire the remaining shares in DHG at $4.20.
- Nine Entertainment (NEC AU), the controlling shareholder with a 60% stake in DHG, has not yet decided on the proposal.
- The market expects a slight bump to the $4.20 bid to secure NEC's approval, with DHG trading around $4.40 post-bid.
- Blackwattle Investment Partners continues to hold DHG due to its highly attractive valuation and strong business model.
- Market concerns about market-share reductions were viewed as overly pessimistic by Blackwattle.
- The change in CEO and focus on costs has enhanced confidence in a turnaround opportunity.
- DHG delivered a strong 1H25 result just before the takeover bid.
- It is now the 5th stock within 18 months to receive takeover offers, signaling high-quality business potential.
- This reflects the valuation divergence between listed equity markets and private capital.
- Blackwattle Investment Partners sees this time arbitrage opportunity as a chance to deliver alpha.
Spheria Asset Management
28 Feb 2025
$4.34
- Domain Holdings (DHG.ASX) achieved strong organic results.
- Costar Group of the USA acquired a 17% shareholding.
- Spheria Asset Management entered the position based on strong business fundamentals.
- Domain Holdings is currently the number two player in the Australian market behind REA.
- The bid of $4.20 marked a 35% premium to the undisturbed price.
- This activity may indicate a favorable year for small cap M&A.
- Falling rates and a weak Australian dollar enhance attractiveness in small and microcap valuations.
Endeavor Asset Management
31 May 2024
$2.98
- Endeavor Asset Management sold their investment in Domain Holdings (DHG).
- The decision was made despite potential short-term benefits from improving listings in Melbourne and Sydney.
- There is an expectation that DHG will continue to lose market share to REA Group in the long term.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.