Perfect property storm batters McGrath

Shares in John McGrath’s high-profile real estate agency slumped yesterday amid warnings of the impact of the falling market.

John McGrath is back selling real estate. Picture: Monique Harmer.

Shares in John McGrath’s high-profile Sydney real estate agency slumped yesterday after a warning on Friday night that it would be slugged by the falling residential property market as doubts emerge about the performance of its real estate sales business.

The company has been caught up in a storm of falling volumes and auction clearance rates as well as an exodus of high-performing agents and the loss of key offices, including on Sydney’s wealthy north shore.

The company’s shares fell by about 7.7 per cent to 24c yesterday as the investors digested the news the once high-flying agency had fallen to an underlying earnings loss for the eight months to the end of February of $4.5 million and worse may be to come if conditions remain tough.

Rival agencies have picked off some of the listed real estate firm’s agents, with McGrath’s lower north shore franchise switching allegiance to Di Jones last month, but the firm has argued it has also hired new staff and its founder is back selling property and bolstering sales after a tumultuous period running the company.

Industry players suggested that McGrath was also dealing with a deeper shift away from expensive company-owned offices to lower cost agency models. But the company has supporters, with veteran funds manager Andrew Brown of East 72 arguing that the market was valuing the stock incorrectly.

While real estate sales are the most visible part of the company, he said significant value lay in the company’s rental rolls.

These privately trade at about two to 2.5 times their revenue and with McGrath controlling about $19m, Mr Brown said these alone would account for the firm’s market capitalisation.

The company also undertakes property management, franchising and education but Mr Brown pointed to lacklustre real estate sales and high corporate overheads.

“They need to get that bit lower,” he said.

He praised chief executive Geoff Lucas and founder and now executive director Mr McGrath for stabilising the business after a period of an “imposed” board and management.

But he was realistic about its prospects and the market, saying that McGrath could benefit if the market plunges further and distressed selling gains pace, potentially lifting volumes for both its owned offices and franchisees.

If the property market grinds along the bottom, the firm could be well positioned in future.

ben wilmot