Struggling listed real estate agency group, McGrath Limited (MEA) has been forced to slash its dividend target from 4.5 cents a share to 3 to 3.5 cents a share after it was forced to cut its sales estimates for the 2016 financial year.
The company had asked for its shares to be suspended on Friday (they had closed the previous day at $1.30, compared with the float price last December of $2.10).
They closed at 90 cents, down 30%. At one stage they were down more than 35%.
McGrath said that while group revenue was up 6% in the 9 months to the end of March, and revenue from pre-existing offices was up 9%, the company hit the wall in April.
McGrath told the ASX yesterday that it now expected a 25% to 35% fall in real estate listings in western Sydney compared to what its prospectus forecasts were. It said there would be a continued reduction in Chinese buyer activity in the north western Sydney region.
These factors would hit earnings in the order of $3 million to $4 million. And more worrying, the company revealed revenue lost due to delays implementing new IT software would further hurt earnings by another $1 million.
MEA 1Y – Unhappy listing for McGrath
That is the first we have known of this problem, which is a basic process that all companies should get right. This should be a big concern for investors.
“As flagged at the end of the half year, current conditions remain challenging in certain market segments and with listings and sales volumes not expected to materially change in the near term, McGrath has accordingly adjusted its expectations for sales volumes and values for the last quarter of fiscal 2016," the company told the ASX yesterday.
"On the basis of the current quarter’s listings trend (assuming there is no improvement in listings volumes) and current market conditions, McGrath expects to generate 2016 revenue in the range of $136 million to $140 million, and pro forma EBITDA in the range of $26 million to $27 million."
The main area of concern is revenue from company-owned offices acquired from the Smollen Group in the lead-up to the float late last year. That revenue is 10% below budget.
McGrath paid $29 million for Smollen, but that $2.6 million of that would now not be paid because the business did not meet performance targets set at the time of purchase.
Directors said the company had no debt and surplus cash at June 30 this year. But they warned that it was “challenging” to forecast 2017’s performance for the company.
The sharemarket’s response – investors sold the shares down by over 30% at one stage yesterday.
McGrath joins the inglorious list of recent dud floats in Dick Smith, McAleese Corp and Slater and Gordon.
