McGrath shares fell hard after the real estate agency issued a profit warning as listings shrink, foreign buyers become scarcer and finance harder to get.
At the close, they were down 15.5% to $0.515. McGrath, the first real estate agency on the ASX, floated in December 2015 at $2.10 a share.
In the first four months of the financial year, McGrath says the company’s revenue and EBITDA have fallen short of expectations.
The company now has a preliminary plan to remove $5 million of annualised costs at a one‐time restructuring cost of $1.4 million to $1.6 million. Details will be finalised by the AGM on November 22.
Most of these savings will be achieved by restructuring the board, executive and leadership team.
“The underperformance is largely in company owned sales, and is influenced by several factors including continued lower volumes of listings in most markets we serve, lower agent numbers and a significant slow‐down in the traditionally volatile Project Marketing segment,” the company said in a trading update.
“Government policy changes around foreign buyers and developers coupled with tightened lending requirements have particularly affected this segment.”
Franchise and property management businesses are performing largely to expectations.
McGrath has not given earnings guidance for 2018, but research by Bell Potter gives a full year estimate of $16.6 million EBITDA (earnings before interest, tax, depreciation and amortisation).
However, McGrath now says it doesn’t expect earnings to reach $16.6 million. And even with proposed savings, 2018 earnings could be 20% to 25% lower than the analyst estimate.
“The board believes it prudent to assume continued subdued market conditions, especially in Project Marketing,” the company says.
“Accordingly, it is assessing a range of measures including the optimal level of cost reductions, balancing shareholder earning requirements with longer term objectives.
“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.”
Company founder John McGrath brought in Cameron Judson, a human resources expert, as CEO a year ago.
In August McGrath posted a 42% fall in full year profit to $4.871 million.
At that time the company reported property listings down 11% and the loss of a number of “high performing” sales agents.
The company said Chinese buyer activity has continued to decline in the north western Sydney region.