Real estate business McGrath is in chaos as agents resign and its shares plummet

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Real estate business McGrath has seen its earnings hit as fewer homes come on the market, combined with the sudden resignations of a large number of its real estate sales agents.

Shares in McGrath fell today after the listed property agent warned of weaker trading in the second half of the 2017 financial year.

A short time ago, the shares were down 14% to $0.73.

McGrath doesn’t give guidance for earnings but says early indications suggest first half results will be in line with analyst estimates.

“However, we believe the second half results will be weaker than the first half, which would make those full year analyst estimates look high,” the company said in a market update.

The company says there’s been no improvement in the low number of listings noted at the AGM in November.   

While home prices have surged, the latest numbers from property industry analysts CoreLogic show a steep drop in the number of properties for sale in most capital cities.

There are 13.9% fewer for sale in Sydney than a year ago, 8.4% down in Melbourne and 20.1% in Canberra.

Australian home owners are staying in their properties longer.

The average number of years that capital city residents hold their homes increased to 10.7 years from 6.7 years in 2005 for houses and to 9 years from 5.9 years for apartments.

McGrath says this contributes to the decline in volumes available for sale, eroding housing affordability in many capital cities, including Sydney.

The company also says it’s had an “uncharacteristically large” agent churn, especially over Christmas and New Year.   

The company says 36 sales agents have left, leaving 225 still with the company.

“While the company is actively recruiting, the usual time for an agent to become fully productive means these new agents will not match the volumes required to maintain our previously expected second half earnings,” the company says.

CEO Cameron Judson says the company recently launched a new remuneration and longer term wealth creation framework for high performing agents.

“We have an unparalleled track record of growing and nurturing the best real estate agents in Australia, and aim to maintain that,” he says.

“However, the recent net outflow is more than we usually see, and we believe it prudent to alert the market to the likely impact.”

In 2016, the company posted a 24% lift in full year profit to $8.36 million on a 41% rise in revenue to $120.95 million.

McGrath floated in December 2015, raising $129.6 million, but then issued profit warnings after an unforeseen low volume of listings and sales in the first half of April, particularly in the north and north-western suburbs of Sydney.

The company late last year warned that challenging market conditions were expected to continue in 2017.

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