The Bull

Saturday 25

November, 2017 1:11 PM

McGrath flags weak earnings, shares fall

McGrath flags weak earnings, shares fall

McGrath has warned its full-year profit will be lower than the market's expectations, leading to a sharp fall in its share price.

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By AAP 06.11.2017 03:35 PM

Real estate agency firm McGarth has partly blamed the federal government's policy changes around foreign buyers and tougher lending requirements on banks for a slide in its sales.

Shares in McGrath plunged to an all-time low after the business warned that its full-year earnings will be lower than expected.

The group said it has had weaker-than-expected sales during the first four months of the current financial year, with the "underperformance" largely at its company owned agencies.

It said several factors were behind the weak trade, including lower listing volumes in most of its markets, fewer agents and a significant slowdown in its project marketing segment, which includes off-the-plan and completed dwellings.

"Government policy changes around foreign buyers and developers coupled with tightened lending requirements have particularly affected this segment," a statement from the company said.

McGrath has not provided specific earnings guidance for 2017/18 but says it does not expect to reach analyst group Bell Potter's estimate of $16.6 million in EBITDA (earnings before interest, tax, depreciation and amortisation).

It said trying to meet that estimate would have required significant cost cuts "that may not be in the best interests of the business in the long term".

McGrath forecasts earnings to be 20 per cent to 25 per cent lower than Bell Potter's estimate, due to high restructuring charges.

Its shares were down 10 cents, or 16.4 per cent at 51 cents by 1531 AEDT, after having plunged to 45.5 cents during morning trade.

The stock is now at its lowest level since listing on the share market two years ago.

The company, founded by John McGrath in 1988, has suffered an exodus of experienced real estate agents as its share price has declined alongside a series of weak trading updates and disappointing results.

McGrath became the first real estate agency to list on the ASX in December, 2015, with an offer price of $2.10 but by February, 2016, it was trading at $1.45 after its maiden first-half profit dropped sharply to $367,000 from $2.05 million a year ago.

The poor result coincided with an easing housing market, a decline in new home sales and auction clearances, especially in Sydney.

Its earnings have continued to decline, including a full-year net profit fall of 42 per cent to $4.9 million in the 2017 financial year.

There have also been a number of board changes, including the resignation of chief financial officer Paul Hauenschild in September and last year, founder John McGrath stepped down as chief executive but continued on as a director.

The group now plans to remove about $5 million of annualised costs from the business, with most of the savings to come from restructuring the board, executive and leadership team, and cutting management roles.

McGarth's network includes 28 company owned and 74 franchised agencies as of June, 2017, and a property management division, mortgage broking, auction services and real estate training businesses.

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