John McGrath calls for calm as real estate company forecasts rise in earnings for FY22

Despite recent trading conditions proving disruptive for the residential property sector, real estate business McGrath (ASX: MEA) has announced it expects overall earnings to climb by roughly 8 per cent this financial year.

The trading outlook update comes after founder John McGrath returned to the role of CEO and managing director of the Sydney-headquartered company in early April, following the departure of Eddie Law as CEO in February.  

Although EBITDA is expected to rise to between $18 million and $20 million, up from $17.6 million in FY21, net profit after tax for the year is likely to drop due to several one-off abnormal costs equating to around $6 million being absorbed by the business during the last financial year.

“While our results in April and May have been impacted by a range of external factors, I am very happy overall with the new direction of the company with a firm focus on talent and technology delivering our customers continued superior results,” McGrath said.

“Our internal estimates indicate we are gaining market share in many key markets, which is a testimony to the high quality of our agents and franchise partners’ service offering alongside our brand.

“The previous cycle was overheating, and we needed a breather to slow down the sustained price escalation,”

McGrath said that he and the business had been through at least six market corrections in the last 40 years.

“Everyone panics when things slow down or prices come back, but if you look at history, these periods do not last long, and prices rarely come back more than 8 per cent to 9 per cent. In fact, when interest rates peaked at astronomical levels of 17.5 per cent around 1990, prices only retreated around 10 per cent,” he added.

The company pointed to the spike in COVID-19 cases, public holidays, the federal election campaign and a rise in the interest rates announced by the Reserve Bank as contributory factors in the slow-down of the market over the past couple of months.

Listings for April were down 17.2 per cent across the industry compared to April 2021 and it was a similar story for May.

In the three months to April, average selling prices for capital city homes saw upper quartile values fall 0.5 per cent, and a similar trend is expected in May and June.

“We expect McGrath will show high single-digit growth in EBITDA for the financial year, and we are in a very strong financial position, with currently about $35 million in cash on hand after investing more than $6 million in corporate expansion and approximately $1.3 million in the current on market buyback program,” McGrath said.

“We expect an increase in listing activity now the federal election is over and are well placed to grow further market share moving forward.

“The fundamentals of the property market remain strong, and we are in a solid position to not only withstand any short-term market volatility but also to capitalise on opportunities to grow our earnings and increase shareholder value.”

McGrath, which offers clients agency sales, property management, mortgage broking and career training services, has 108 offices located down the east coast of Australia and employs more than 2,000 people.

Founded in 1988, the business has more than 34,000 properties under management and recorded approximately $10.8 billion of property sales during 1H22 from the sale of 7,797 properties.