McGrath’s shares are getting destroyed

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Listed residential real estate agency McGrath has cut both its earnings forecasts and expected dividend payout as the once booming property market in Sydney starts to cool.

A short time ago, McGrath’s shares were down 30% to $0.90. On listing in December, the shares dropped below the IPO price of $2.10 and haven’t reached those levels since.

McGrath says there was an unforeseen low volume of listings and sales in the first half of April, particularly in the north and north western suburbs of Sydney.  

Chinese buyer activity has continued to decline in the north western Sydney region.

And the company now expects listings in western Sydney to be between 25% and 35% below prospectus forecasts.

McGrath’s shares lost 25% to $0.965 in early trade. On listing in December, the shares dropped below the IPO price of $2.10 and haven’t reached those levels since.

“The company believes the fall in listings in the North and North Western suburbs of Sydney is in line with the market in those areas,” McGrath says.

Price growth in Sydney’s property market has started to slow with the latest numbers from Corelogic RP Data showing capital city house price growth easing in March.

CoreLogic RP Data says the housing market has been losing momentum since July last year.

McGrath now expects to generate full year revenue in the range of $136 million to $140 million, and EBITDA (earnings before interest, tax, depreciation and amortisation) in the range of $26 million to $27 million.

The company says it will increase the target payout ratio to 75% of net profit for the 2016 year.

This will decrease the target dividend to 3 to 3.5 cents a share from 4.5 cents.

“While current industry volatility makes it challenging to forecast FY17, the long term fundamentals of the real estate industry remain attractive, underpinned by historically low interest rates and population growth,” McGrath says.      

McGrath says the business was performing slightly ahead of management’s budget when listings and sales started to fall off in late March.

At that time, revenue from company-owned offices acquired from the Smollen Group was 10% below budget.

The company, founded by John McGrath in Sydney, went into a trading halt on Friday to review the 2016 financial year prospectus forecasts in light of current market and trading conditions.

McGrath, the first in real estate agency to list on the ASX, floated in December, raising $129.6 million.