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Category: Housing Industry / Company News

McGrath profit warning amid agent exodus

Monday, 23 Jan 2017 07:15:56 | Michael Janda

McGrath real estate's founder, John McGrath, stepped down as CEO last year. (Fairfax Media)

Listed real estate agency McGrath has warned investors that its full-year profit will probably miss analyst forecasts, as it confronts an exodus of agents.

McGrath has not offered an earnings estimate for financial year 2017, citing uncertainty in the property market and very low levels of listings.

However, it said that analyst forecasts of its full-year earnings "look high" with the second half results expected to be weaker than a first half which appears likely to match expectations.

"The unprecedented low volumes of listings as a per cent of total housing stock noted in the chairman's address in November is not yet showing signs of improvement," the company observed.

However, the more pressing problem for McGrath is an exodus of experienced real estate agents, especially from its company-owned offices.

With many of these agents either joining rivals or starting their own agencies, McGrath is set to face even stiffer competition and the risk of losing market share.

"While McGrath grew market share in two thirds of its total offices in financial year '16, we have experienced an uncharacteristically large agent churn recently, especially over the Christmas and New Year period," the company noted in its trading update.

"The departures from our company-owned offices segment suggests market share growth will be more difficult to achieve in that segment in the second half."

Why McGrath's float sank


Many analysts warned from the start that McGrath IPO investors were being sold a dud.

McGrath's company owned agencies have lost 36 agents - around 14 per cent of its sales staff.

It warns that it will take time for the new recruits who replace these agents to get up to speed, meaning it will not be able to maintain the sales volumes to meet its previously expected second half earnings.

McGrath said other segments of its business continue to see "solid growth" and it opened 18 new offices (three company-owned and 15 franchises) last year, with plans to open more over the next year.

McGrath shares had slumped 15 per cent to 73 cents by 10:11am (AEDT) shortly after the market opened.

That means the company has now lost almost two-thirds of its value since listing in December 2015 at $2.10 per share.

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