The Agency dips to record low share price

The Agency has dipped to a record low share price of just below 7 cents on the ASX yesterday, in the week after its announcement it had secured $5.6 million in funding.

It was trading at 22 cents in mid-February and at 31 cents last September, but 6.7 cents in recent trade which values the company at $7.2 million.

Sharemarket analysis website commentary suggested the latest capital raising was foreseeable since the company had "never been adequately capitalised."

"Their overheads are crazy," one shareholder noted.

Before the announcement last week the sharemarket analysis had hoped the fundraising wasn't "too dilutive to existing holders who just keep getting watered down."

But the capital raising that saw the Sydney-based boutique investment group Magnolia Capital becoming a substantial shareholder was highly dilutive.

Magnolia Capital now have up to an 18 percent holding in The Agency, with their director Mitchell Atkins joining The Agency board as a non-executive director.

Honan Insurance Group also invested. 

The Australian newspaper reported The Agency has "secured a lifeline from Sydney boutique investment group Magnolia Capital, allowing it to extend its $12.5 million debt to Macquarie until September 30 in return for an 18 per cent stake."

It noted further debt of about $1.1 million is also owed to a range of other lenders.

“The restraints on The Agency’s growth which have been led by its (weak) balance sheet have been removed,” a spokesman for The Agency said.

In a statement to the ASX, The Agency said it was in discussions with parties to refinance its debt ahead of its maturity on September 30.

“The debt-to-equity conversion will significantly reduce The Agency’s debt position, primarily bank debt, from $21.2m to $13.6m,” The Agency told the Australian Securities Exchange.

“The company is currently in discussions with a number of parties in relation to the refinance of its remaining debt of about $13m ahead of its maturity which occurs on 30 September, 2019,” it said.

“With a strong net asset position of around $33.8m (primarily rent roll and mortgage book) it was important to get the loan-to-value ratio to below 50 per cent, which it will be following this transaction with Magnolia and Honan,” the company said.

The $5.6 million raised comes in the form of $1.1 million in placement and $4.5 million through entitlement offers.

The Agency's current $5.8 million debt will be converted into equity, reducing the total debt position by 27 percent.

It advised $2.2 million of the funds will fund further growth and acquisition initiatives.

For the quarter, the Agency reported combined total revenue of $10.8 million and gross commission income (GCI) of $10 million, both results consistent with the previous quarter.

They saw a record 674 exchanges and more than $600 million worth of property sold across the combined group for the quarter.

"I think they really need to pull a rabbit out of the hat," one Hot Cooper comment said.

Another said: "Not sure what rabbit they have in their hat now.

"I like the business model but just as Mark Bouris has learned at YBR, if you are going to run a business that depends on skimming a little bit of revenue off someone else's business then you need to have a very large base to do that from, otherwise you need to be running a very very lean operation...which AU1 isn't."

There was commentary in June that suggested the estate agency had "burnt all the previous supporters" in the prior four capital raising.

"I am surprised we haven't seen greater tax loss selling here," one comment suggested in June.

One estate agent advised "anyone can buy market share if you have the money."

"Their reps are on 80% commission.

"That's why they have so many of them.

"How does a business model like that stand up?

"All they are doing is bragging about market share.

"That does not equate to profit and never has," the agent said.

One Agency shareholder noted the acquisitions "clouded how badly they are actually doing."

"All the trend lines are going backwards, but sure you dream on.

"I've sold out at half what I paid and I think I'm lucky to get away with that," the shareholder advised.

Another shareholder noted the difference between Ahe Agency and McGrath was that "McGrath blame the market for their poor share price instead of themselves, whereas The Agency keeps highlighting strong results in a slowing market and making acquisitions of more companies to increase their revenue in the future."