McGrath’s earnings soars as real estate agency group forecasts market bounce after lockdowns
Real estate agency group McGrath says the residential market will perform well once lockdown restrictions are lifted.
The boss of real estate agency McGrath Eddie Law has given a bullish take on the residential property market which he says is being driven by high liquidity and fear among buyers of missing out amid rising home prices.
While liquidity remains abundant and loans remain low cost and accessible, Mr Law said housing would be among the big winners from a world awash with cash while people have the capacity to buy even during lockdowns.
“The reality is there is going to be a valuation uplift on most asset classes, particularly those that people feel that they best understand,” he said.
Mr Law said Covid was driving people toward seeking out secure sanctuaries and buyers were willing to pay premiums for good quality properties. Listing volumes had slightly waned relative to demand, which was partly driving pricing. But they expect them to come back, with investors driving up McGrath shares by 3.8 per cent to 55c.
“People are now getting far more comfortable trading at a distance, and trading with confidence at a premium,” he said. The pandemic has also made people move more quickly on properties, with it highlighting the need for families to be in an environment where they felt safe and secure.
He pointed to the capacity of markets to bounce back with Melbourne recovering after its lockdowns and he expects a similar experience in Sydney.
Mr Law expects state and federal governments to resolve that life needs to go on with Covid and dubbed getting to zero cases a nirvana which would not be reached. “It is just not going to happen because we‘re a country that ultimately has to find a mechanism to open the borders and international borders,” he said.
McGrath had an $18.3m profit turnaround on the back of the strong residential market and believes that sales will bounce back once lockdowns end. Net profit soared to $19m in the 2021 financial year from $700,000 previous year, when the pandemic first hit.
Mr Law said positive market sentiment, price stability in key markets and strong clearance rates contributed to the sales businesses improving. “The residential property market has proved to be very resilient during the ongoing Covid-19 pandemic, compared with other sectors,” he said.
He gave an upbeat assessment of the potential for a rebound. “We are optimistic about the strength of the economy which we anticipate will rebound quickly once high vaccination levels allow businesses to resume operation and international borders reopen.”
Mr Law said the market had changed with buyers also forging into regional areas and chasing larger homes. “Naturally the pandemic has highlighted a recalibration of lifestyle choices that will continue to impact the residential market,” he added.
He also expects some Covid-related volatility but said the fundamentals of the property market remain strong. “Despite sporadic lockdowns throughout various states, the first eight weeks of the new financial year have seen trading in line with our expectations and our business well positioned for long-term future growth.”
The significant improvement in the company’s performance was highlighted by a $14m jump in annual underlying earnings to $17.7m. The underlying earnings result was at the top end of the guidance range provided at the company’s April trading update.
Revenue jumped 34 per cent to $122.4m for the year ended June 30 as sales per agent surged 38 per cent, despite total lower listing volumes in the market.
McGrath’s revenue jumped by 54 per cent, thanks to a 40 per cent increase in the number of properties sold, a leap in agent productivity and a 58 per cent increase in average selling prices, according to Mr Law. He also pointed to the strength of the growing Oxygen mortgage business which offers another strong avenue of growth.
McGrath is well positioned to capitalise on the market reopening and closed off the year with no borrowings, $35.8m and its rent roll is estimated to be worth $48.9m.
The group will pay shareholders a 1c a share fully franked final dividend, taking the total for the year to 1.5c.
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