SHARES in real estate agency McGrath Ltd (ASX:MEA) slumped below $1 for the first time after the company revealed it would fall short of profit targets this financial year.
The shares, which resumed trading ahead of a profit update, were smashed this morning as McGrath revealed a slump in listings from some of its key markets in north and north-west Sydney.
Investors, spooked by growing concern that the property boom has peaked, were also motivated by news that the proposed 4.5c final dividend will be slashed to 3c a share.
The market pushed McGrath shares, which were offered at $2.10 each last December, down to a low of 85.7c in morning trade. They settled around 89c by noon, down more than 31 per cent from their previous close.
The share rout comes in the wake of growing concern that the property market is headed for a correction in the wake of a slowdown in Chinese investment and tighter lending rules by banks.
In today's announcement to the ASX, McGrath revealed that while revenue was tracking 6 per cent above prospectus forecasts, low volumes of new listings would impact on the company's profit performance in the final quarter of this financial year.
It says that assuming there is no improvement in listings in the current half year, FY16 revenue is forecast to land between $136 million and $140 million, down from a prospectus target of $141 million.
The pro forma EBITDA has been revised down from $31 million to between $26 million and $27 million. It says EBITDA is currently at 1 per cent above budget.
The slowdown in north and north-western Sydney suburbs has been reflected in revenue from company offices in the Smollen Group, which were acquired as part of the company's $281 million IPO. Revenue from the Smollen Group network is tracking 10 per cent below budget.
McGrath has revealed a 25 to 30 per cent drop in listings had impacted the Smollen offices in northern and north-western Sydney this month.
"As flagged at the end of the half year, current conditions remain challenging in certain market segments and with listings and sales volumes not expected to materially change in the near term, McGrath has accordingly adjusted its expectations for sales volumes and values for the last quarter of FY16," says the company.
"Listings in the company-owned offices acquired from the Smollen Group (located in north and north-western Sydney) are now expected to be 25 per cent to 30 per cent lower in the final quarter of FY16 than was expected for this period when the prospectus forecast was prepared.
"This compares to listings in pre-existing company-owned offices expected to be flat to slightly lower over this quarter."
McGrath says the Sydney market has been hit by fall in Chinese buyers as well as delays for a number of projects it is marketing for developers.
McGrath says the under-performance of the Smollen Group will likely negate the company's need to pay a $2.62 million performance bonus to the vendors.
McGrath Limited says it retains a strong balance sheet, and reiterates CEO John McGrath's comments earlier this year that he sees fundamental strength in the property market over the long term.
"While current industry volatility makes it challenging to forecast FY17, the long-term fundamentals of the real estate industry remain attractive, underpinned by historically low interest rates and population growth," it says.
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