Overview: Trade Me Group Limited (“Trade Me”, “the Company”) is a New Zealand-based software company focused on classified advertising. Trade Me owns and operates TradeMe.co.nz, New Zealand’s largest online auction and shopping website and fifth most frequently visited website in the country. The site averages over 25m visitors per month and spans from auctions to fixed-priced sales for new and used goods, with automotive, real estate, and employment businesses.
Catalysts: Trade Me is the market leader in online classified advertising and has a strong track record of earnings and dividend growth. Over the past four financial years, revenue grew at a compound annual growth rate of 10%, and continuation of this trend whilst controlling expenses is the primary catalyst for shareholders. Payable in September 2017, Trade Me is expected to increase its full-year dividend, taking the annual yield to over 3.5%.
Hurdles: In order to retain its market-leading position, Trade Me has to invest significantly in product enhancements and marketing and the Company may be subject to increasing competition from NZ and overseas. As the Company is currently focused on New Zealand only, Trade Me may be operating in a saturated market, which may no longer generate sufficient new demand for its products and services.
Investment View: Trade Me offers profitable exposure to online retail trends in New Zealand. We are attracted to the Company’s growth trajectory, market position, and history of dividend growth. Competition and market-specific risks are primary hurdles and may challenge the Company’s ability to deliver ongoing dividend growth on favourable terms for shareholders. Overall we favour the balance of risk and believe that Trade Me offers a compelling mix of capital growth and income. We initiate coverage with a ‘buy’ recommendation and add this position to our dividend portfolio.