A CASE OF BAD TIMING FOR MCGRATH ASX DEBUT

Written on the 8 December 2015 by Nick Nichols

A CASE OF BAD TIMING FOR MCGRATH ASX DEBUT

IF TIMING is everything, McGrath Limited (ASX:MEA) had a miss this week as its shares fell for their second day of trading on the stock exchange.

Facing a big drop on Wall Street overninght, and talk of a cooling Sydney property market, shares in John McGrath's real estate agency dipped up to 5.7 per cent to a low of $1.73 in morning trade.

They are now 14 per cent below their issue price of $2.10, and trading at the lower end of the bookbuild price range of $1.80 revealed during the IPO.

The McGrath IPO raised $129.6 million from investors through the issue of 53.7 per cent of the company, valuing the enterprise at $281.8 million. The valuation is 8.8 times forecast EBITDA in FY16, with an annualised yield of 3.7 per cent.

The McGrath prospectus revealed the group recorded a 19 per cent lift in revenue to $86 million FY15, thanks to $11.6 billion in property sales. Revenue was up from $72.3 million in FY14.

Net profit in FY15 landed at $7.035 million, down from $9.257 million, with the latest result impacted by an $8.7 million increase in the cost of sales.

McGrath is forecasting total revenue of $125.2 million and net profit of $10.1 million in FY16. On a pro-forma basis, net profit is estimated at $18.2 million, up from $15.7 million in FY15.

McGrath paid dividends totalling $6.4 million in FY15, up from $1.539 million a year earlier. It is forecasting $11.1 million in dividends for the current year.

Funds raised through the IPO will be applied to retire $15.9 million in debt, and for the acquisition of McGrath's largest franchisee, Smollen Group, for $52.5 million. The acquisition comprises $31.5 million in cash and the remainder in McGrath shares.

The Sydney-based McGrath, which was founded by John McGrath in 1988 as a one-man operation, will have a national network of 22 company owned offices and 53 franchised offices following the acquisition of Smollen Group.

Shane Smollen, a one-time Gold Coast real estate agency owner who more recently was McGrath's sales director, owns 75 per cent of Smollen Group. He has built his McGrath franchise group on Sydney's North Shore and northern beaches to 10 offices over the past eight years.

McGrath, said to be the third largest residential real estate group by value of sales, also operates the Oxygen Home Loans mortgage broking business, which has $2 billion in loans under management.

CEO and company founder John McGrath holds 36.3 million shares in the group, or 27 per cent of the issued capital. He had held 54.1 million shares prior to the IPO, cashing in $37.38 million from the IPO.

More than nine million shares in McGrath Limited have changed hands in the first two days of trading.


Author: Nick Nichols

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