Morningstar flags regulatory risk for 'wildly' overvalued REA Group

Morningstar says the market appears to be disregarding chances of a regulatory hit to profits at Australia's REA Group REA.AX

Investment research firm flags continued price increases by the property listings portal likely to court further regulatory scrutiny and raise chances of action being taken

Adds shares screen as "wildly" overvalued, as the market seems to expect price hikes to continue for longer time than reasonable

Morningstar disagrees with REA that company is "entitled" to higher prices, citing expectations for property costs to increase due to lower interest rates

Given that the company is under active investigation by the Australian competition regulator, analysts believe it is courting regulatory risk with pricing policy and commentary

Morningstar lifts fair value estimate for REA by 3% to A$134, reflecting forecast of mid-to-high single digit price hikes over a 10-year period

REA, on Wednesday, reported FY EBITDA from property and online advertising operations of more than A$1 bln ($650.60 bln) for the first time

YTD, stock up 9.08%

($1 = 1.5375 Australian dollars)