Fairfax to demerge property-listings unit

SYDNEY: Australia’s Fairfax Media Ltd yesterday confirmed plans to demerge Domain Group, cheering investors even as the property division posted its first-ever drop in earnings due to falling property listings.

Fairfax shares surged by 10.3%, the highest intraday gain in more than three years, after the publisher of The Sydney Morning Herald and The Australian Financial Review newspapers announced the longawaited demerger plan.

A 13% fall in half-year earnings before interest, tax, depreciation and amortisation from Domain in the six months ended Dec 31 did little to dim investors’ hopes for greater returns from the demerged property listings unit, Fairfax’s highestearning division.

“We see the weakness in listings in the first half as cyclical,” Fairfax chief executive Greg Hywood told analysts. “New real estate listings have seen some early signs of improvement in February.”

Fairfax Media reported a 6.1% rise in underlying net profit to A$84.7 million (US$65.16 million) in the first half, with lower interest and depreciation charges offsetting a 10% drop in operating earnings.

Domain Group runs Australia’s second-biggest property listings website and is valued by analysts at about A$2 billion, equivalent to Fairfax’s entire market value.

With soaring property prices fuelling advertising income, investors have long called for it to be listed as a separate entity and freed of its more traditional news media stable-mates, which have been losing advertising revenue for years.

Fairfax has always hosed down such suggestions, but Hywood said Domain had now achieved a scale where it could stand on its own two feet.

Fairfax said it would look to maintain a 60 to 70% stake in Domain after listing it as a separate entity, with the remainder distributed to its shareholders.

The demerger plan comes after sharp rises in Sydney and Melbourne property prices have some analysts warning of a bubble.

New property listings by volumes have fallen by a quarter from last year, according to property consultancy CoreLogic.

But analysts said it still made sense for Fairfax to follow the example of rival News Corp, which has a 61.6% stake in larger real estate classifieds arm REA Group Ltd.

“REA Group is a great example of how a demerger in this sector can work,” APP Securities private wealth adviser Matthew Felsman said. “Arguably Domain would look like a gem on its own without the old media Fairfax elements involved in its risk and valuation.”

Fairfax said running Domain as a separate entity would cost A$8 million to A$10 million a year. It says it has no plans for a capital raising.