Shares in real estate agency group McGrath closed badly battered yesterday after the Sydney-based real estate company cut its earnings guidance and promised an intense round of cost cutting.
The company is ‘collateral damage’ in some respects in the campaign by the Federal Government and financial regulators to take the heat out of property markets, especially in Sydney and Melbourne.
The shares slumped to an all-time low yesterday in the wake of yesterday morning’s downgraded guidance.
McGrath’s shares had plunged 26%, to a low of 45 cents.They later recovered to end at 51.5 cents, down 15.5%.
That is their lowest since listing on the share market two years ago.
It was the first real estate agency to list on the ASX when it debuted in December, 2015 with an offer price of $2.10. It has never traded above that price.
The latest warning comes after the company reported a 42% slide in 2016-17 full-year net profit to $4.9 million.
McGrath told the ASX that it has had a weaker-than-expected first four months of trading largely due to weak company-owned sales, with listings in most of its markets down and fewer agents.
It also blamed government policy changes around foreign property buyers and developers, and tightened lending requirements, especially on interest only loans and on investors.
The company has not provided specific earnings guidance for the 2018 full year, but says it does not expect to reach estimates from Sydney broker, Bell Potter of $16.6 million EBITDA (earnings before interest, tax, depreciation and amortisation).
"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 said in a statement to the ASX on Monday.
Instead, McGrath forecasts earnings will be 20% to 25% lower than Bell Potter’s estimate, due to high restructuring charges.
McGrath said it plans to remove about $5 million of annualised costs from the business at a one-off restructuring cost of between $1.4 million and $1.6 million.
"The Board believes it prudent to assume continued subdued market conditions, especially in Project Marketing. Accordingly, it is assessing a range of measures including the optimal level of cost reductions, balancing shareholder earning requirements with longer term objectives,” the company said yesterday.
"The Board and CEO will have progressed this work and will update investors at the upcoming AGM. The preliminary plan, which will be discussed with major shareholders between now and then, is to remove approximately $5 million of annualised costs from the business at a one‐time restructuring cost of $1.4 million to $1.6 million.
"Most of these savings will be achieved by restructuring the Board, Executive and Leadership Team, removing management associated with M&A and Company Owned Office expansion activities and non‐revenue generating roles across the organisation. Our objective is to at least maintain, if not improve, service delivery to our Sales Agents, Property Managers and Principals.”
"The discussions with major shareholders may inform the Board and Executive about options to further accelerate, slow or add to the Plan. The Board and Executive will seek to best balance short and long term imperatives, but note that the short term imperatives demanded of a listed real estate services company are often at odds with long term capacity building and market share growth. This, too, will be discussed with shareholders, “The company said yesterday.
