SHORT-TERM PROPERTY FEARS HIT MCGRATH SHARES
Written on the 24 February 2016 by Nick Nichols
SHARES in McGrath Limited (ASX:MEA) slumped more than 19 per cent today after the company warned of unexpected headwinds faced by the Australian property market in the short term.
The Sydney-based real estate group has posted an interim net profit of $400,000 for the December half-year, down 82 per cent from a year earlier.
The result included IPO and acquisition costs of $11 million and was delivered on a 33 per cent lift in revenue to $54.3 million.
However, on a pro-forma basis, which McGrath gives a better perspective of the company's underlying performance, net profit was up 13 per cent to $14.7 million while revenue rose 25 per cent to $74.9 million.
While CEO John McGrath (pictured) remains upbeat about the newly listed company's prospects, shareholders took a different view today, with sellers pushing shares down as low as $1.37 from Tuesday's close at $1.70. The shares are now 33 per cent below their $2.10 issue price.
McGrath warns that changes to negative gearing laws, a tightening of lending rules by banking regulator APRA and a slowdown from Chinese buyers have created challenges for the sector in the short term. He also says stock market volatility is another factor taking its toll on the sector.
"The long-term fundamentals of the real estate industry remain attractive, underpinned by historically low interest rates, population growth and the asset class generally," says McGrath.
"However, the short short-term outlook is less certain and this is creating some headwinds leading to challenging market conditions than originally anticipated at the time of our listing."
McGrath says the group, which is making a concerted push into the Melbourne market after establishing a foothold in Queensland in recent years, lifted agent numbers by 59 to 624 during the period, while office numbers are up 11 to 78.
"The results achieved over the first half of the 2016 financial year reflect our ability to deliver on our growth strategy and leverage McGrath's business model and brand which is attractive to high performing agents," says McGrath.
He says the group is on track to deliver on its FY16 prospectus forecasts, including a planned final dividend of 4.5c a share. There is no interim dividend from the latest half-year result.
Author: Nick Nichols