Are McGrath (ASX:MEA) Shares A Buy After Today’s Update?


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Real estate agency Mcgrath Ltd (ASX: MEA) has released 2 announcements this morning; a Trading Update and the appointment of a new Chief Financial Officer.

McGrath is the well known real estate business started by John McGrath in 1988, growing to be one of Australia’s most successful residential real estate groups. McGrath Estate Agents currently has 96 offices located throughout the East Coast of Australia. The company listed on the ASX in December 2015.

Trading Update

McGrath previously released a trading update in March saying for the 8 months to date, the business had an EBITDA loss of $4.5. million and transaction volumes remain 20% below the prior year in the important Sydney and Melbourne markets.

Things haven’t gotten better in the real estate industry.

In today’s update, CEO Geoff Lucas said: “Trading conditions for the residential sector have continued to be subdued with market transaction volumes down in Sydney, Melbourne and Brisbane by 20.2%, 27.4% and 12.7% respectively and dwelling values down 10.7%, 9.9% and 2.3% respectively for the 12 months to May 2019″.

On the back of this, McGrath expects to record an EBITDA loss of $6.0-$6.5 million in FY19. They will release their FY19 result on 26 August.

On the housing market in general, Mr Lucas said “with the elections now behind us, there is evidence of rising confidence in the property market and broader economy. We are seeing significantly increased buyer engagement at auctions, both from owner-occupiers and investors, buoyed by the recent interest rate cut by the RBA – the first since August 2016, and APRA’s decision to lower the mortgage assessment criteria for new loan serviceability.“

Chief Financial Officer 

In a separate announcement released to the ASX, McGrath announced the appointment of Mr Howard Herman as the CFO. He has 25 years commercial experience including being CFO of NASDAQ listed Naked Brand Group Ltd (NASDAQ: NAKD) and ASX listed Specialty Fashion Group, now known as City Chic Collective Ltd (ASX: CCX).

BUY, HOLD Or SELL

It’s been a tumultuous few years for McGrath shareholders since listing on the ASX at $2.10 per share. There has been a number of management changes, which combined with a difficult property market has seen a near 90% drop in the share price, making it an unhappy time for investors.

Yesterday, property business Stockland Corporation Ltd (ASX: SGP) said in an investor presentation that slowing residential sales were hurting settlement volumes in FY20.

So, it doesn’t seem to be getting easier in the property game. However, with a share price of $0.27, a market cap of $47 million, no debt, and cash on the balance sheet, McGrath may be one to keep an eye on for a turnaround.

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Disclosure: At the time of writing David does not have a financial interest in any of the companies mentioned.