On Thursday, Goldman Sachs made a bullish move on PEXA Group Ltd (PXA:AU), elevating the stock from a Neutral standing to a Buy rating. The firm also increased the price target for PEXA Group to AUD16.00, rising from the previous target of AUD14.20.
The upgrade is primarily attributed to an improved outlook in PEXA's core domestic business, which includes the electronic property transaction sector in Australia.
The optimism from Goldman Sachs stems from a recovery in property markets, which is expected to boost PEXA's transfer volumes by 5% in the financial year 2025 and by 2% in 2026, compared to a 15% decline in 2023.
The analyst noted a shift in transaction mix back towards transfers, aligning with historical patterns. This adjustment is seen as a positive sign for the company's future performance.
Goldman Sachs also highlighted the postponement of interoperability in the electronic lodgment network operators (ELNO) space as a factor that reduces competitive pressure for PEXA.
The firm anticipates that PEXA's market penetration could climb to between 93-94% in the medium to long term, slightly higher than the previous estimates of 92-93%.
This growth is expected to be driven by expansions in Queensland (QLD), Western Australia (WA), and Tasmania (TAS), with a planned rollout in August 2024.
The report further mentioned that while NSW and QLD have shown interest in resuming testing of interoperability programs, the introduction of a second ELNO appears unlikely in the near future due to operational challenges encountered so far.
Moreover, the absence of various interoperability fees, which Goldman Sachs estimates could save PEXA around AUD7 million per year, is projected to contribute to an increase in Exchange EBITDA margins over time.
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