MCGRATH SHARES IN FREEFALL ON PROFIT DOWNGRADE

SHARES in listed real estate company McGrath Limited (ASX: MEA) have plunged sharply after it announced a 25 per cent profit downgrade on analysts' expectations.

At around midday (AEDST), McGrath shares were down more than 17 per cent to $0.50 on the back of a release of figures which show a weaker-than-expected first four months of trading.

The company says the gloomy outlook was caused mostly by a decline in company owned sales along with lower listings volumes which means it expects it will not reach Bell Potter's estimate of $16.6 million for the 2018 financial year.

"McGrath has completed the first four months of trading for FY18 and the company's financial performance has fallen short of expectations at both the revenue and EBITDA levels," says McGrath CEO Cameron Judson.

"In order to deliver a result that would align with forecasts in the market of $16.6 million, EBITDA in FY18, we would be required to make significant cost cuts that may not be in the best interests of the business in the long term."

The company says it is also suffering from a slowdown in the project marketing segment on the back of government policy changes around foreign buyers and developers and tightened lending requirements.

McGrath says its earnings will be between 20 per cent and 25 per cent lower than the Bell Potter estimate because of high restructuring charges and cost savings.

"In the absence of an improvement in market conditions or a major cost out program, the board does not expect EBITDA for FY18 to reach $16.6 million," Judson says.

The real estate giant says it plans to remove approximately $5 million of annualised costs from the business at a one-time restructuring cost of between $1.4 million to $1.6 million.

Most of the savings will be achieved by restructuring the board, executive and leadership team, and removing management associated with company-owned office expansion and non-revenue generating roles across the organisation.

McGrath was the first real estate agency to list on the ASX and they floated in 2015 at $2.10 a share.

In August, it reported a 42 per cent fall in full year profit to $4.87 million.