Real estate agent McGrath fires on lift in residential property markets

The real estate agency has come through a tough period and is ready to ride the home price boom.

McGrath founder and executive director John McGrath. Picture: John Feder

Listed real estate agent McGrath is riding the bullish residential property market and expects volumes to rise further over the half as home prices pick up.

The company’s shares added 14.8 per cent to 66c as investors embraced the company’s turnaround with hopes that greater sales volumes will follow the price leap.

Company founder John McGrath remains the largest shareholder and is benefiting from the turnaround after several lean years as the market was quelled by prudential tightening and then the coronavirus pandemic.

New chief executive Eddie Law said that more people were now keen to trade in the wake of the pandemic changing how they lived, including a shift to sea change destinations.

The firm also cited Australia’s handling of COVID-19 and the country proving to be a safe haven for expats, which was driving demand for properties, and would continue to do so as vaccines are rolled out.

McGrath started 2021 with a positive performance in the early part of this half and Mr Law is optimistic, although the company acknowledged some uncertainty about macroeconomic factors such as the slated end of JobKeeper and bank mortgage relief, and did not give guidance.

The company lifted the number of properties it sold by 20 per cent to 6,900 in the last half. While the initial driver in Sydney was owner-occupied housing, Mr Law predicted the current excess of investment-style stock would quickly get soaked up once conditions returned to normal.

“My anticipation is that in Sydney, particularly, it’ll probably take 12 to 18 months, once you get a recovery in terms of population, migration and international travel students returning,” he said.

Mr Law is expecting a rise in stock levels as clearance rates soar and he is hoping they cool to around 75 per cent to 80 per cent as more homes are marketed.

McGrath hit the top end of its guidance range as it generated first-half profit of $8.1m. Mr Law said the residential property market had proved to be “very resilient” during the ongoing pandemic, compared with other sectors.

“Cashed-up homeowners, many of whom are prevented from travelling either domestically and internationally, are now largely working from home and as such, are reassessing their lifestyle and surroundings. This is positive for our industry as it results in homeowners either transacting or improving the asset value of their current home,” he said.

The company’s revenue jumped 16 per cent to $56.7m as home sales accelerated and earnings before interest, taxes, depreciation, and amortisation turned around to $6.6m.

It also benefited from $2.1m of JobKeeper payments and a $1.9m gain by converting a Parramatta business to a franchise. Mr Law praised the government program for allowing the agency to keep its staff on during the crisis.

McGrath could again turn to expansion as it has $24.6m of cash on it balance sheet and no borrowings, and it has already restarted paying dividends, by declaring a 0.5c per share interim dividend.

The company’s net profit of $8.1m was also a significant turnaround compared with last year’s $1m first-half loss, and it is making better use of its network with a 23 per cent rise in sales per agent for the period, despite lower listing volumes in the market.

McGrath noted that positive market sentiment, price stability in its key markets and strong clearance rates, notwithstanding the market’s lower listing numbers, contributed to its sales businesses performing significantly better.

The property management business turned in “solid” results notwithstanding some headwinds in the rental market, primarily as a consequence of COVID-19 hitting some inner-city markets.