Pexa: Initiating With AUD 15 per Share Fair Value Estimate and a Wide Moat Rating

We initiate coverage on Property Exchange of Australia, or Pexa, with an AUD 15 per share fair value estimate. We award Pexa a wide economic moat rating based on network effects and switching costs in its Australian exchange business. We forecast revenue to grow at a 10-year CAGR of 12% over the next decade, driven by overseas expansion into the United Kingdom market. We estimate EBIT margins to expand to 48% in fiscal 2033 from negative 1% in fiscal 2023, bringing it in line with other wide-moat exchange and financial infrastructure businesses like ASX, Visa, and Intercontinental Exchange. We assign Pexa a Morningstar Uncertainty Rating of Medium, reflecting few competitive or technological threats, relatively low earnings cyclicality, but high uncertainty relating to Pexa’s expansion into the U.K. market. At current prices, we believe Pexa shares are materially undervalued.