MEA Details

Listed real estate group, McGrath Ltd.’s shares recovered over 3.8% on November 13, 2017 with the news swirling around that the group’s founder John McGrath and former Sydney franchise boss Shane Smollen are evaluating the possibility to have the control over MEA through privatisation. Individually, John McGrath (who had resigned as the CEO about a year ago) has 25.9% stake in the group; while the duo owns over a third of the MEA register.

There is a possibility that the group might be acquired at a significant discount to its book value as the stock has fallen down over 71% from its IPO value of $2.10 at the back of significant profit downgrades. It is said that Mr McGrath and Mr Smollen need to raise about $50 million for buying back all the shares at current pricing.

Only recently, the embattled group had signalled for not meeting the market’s earnings expectations in FY18 at the back of softening property market conditions. The group expects to fall short of the annual EBITDA estimate of $16.6 million as provided by Bell Potter, by 20% and 25%. Particularly, the Company Owned Sales was a drag on the performance while factors including continued lower volumes of listings in most markets, lower agent numbers and a significant slow?down in the traditionally volatile Project Marketing segment, further impacted the performance. The situation was worsened by the government policy changes around foreign buyers and developers, and strict lending requirements. The group has flagged for job cuts under an effort towards the target of having $5 million in annualised cost savings.

Looking at the developments, the company might be up for an announcement before the annual general meeting on November 22, 2017. It will be prudent to wait and watch the developments, while we give a “Hold” at the current price of $0.54

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