Extraordinary McGrath Group leak suggests board in turmoil

Extraordinary McGrath Group leak suggests board in turmoil
Extraordinary McGrath Group leak suggests board in turmoil

Deteriorating trading results in the McGrath estate agency finances have emerged in an internal document obtained by The Australian Financial Review.

The Fairfax newspaper advised it had obtained a document, McGrath Group Report November 2017, that showed McGrath Limited had sunk to a $1.3 million loss as it suffered from falling commission income from residential sales, against the targeted $3.3 million net profit after tax between July and November 30.

A leak also advised there had been infighting within the publicly listed company board, and even "threats by the board to resign en masse over the Christmas holiday."

There was a McGrath board meeting on Friday but no announcements made to the stockmarket. It comes just hours before John McGrath was taking back the reigns of the McGrath Group.
 
"It is understood the majority of the board clashed with Mr McGrath over the wording of the next trading upgrade to the ASX," The Australian Financial Review reported.

The loss for the first five months of the financial year compared to a $2.7 million net profit in the six months to December 2016.

Since listing in December 2015 McGrath has delivered several profit warnings prompting McGrath shares to be trading at around 57¢, well below its IPO price of $2.10. It has previously traded as low as 52 cents and fell back to 52 cents this morning.

The emerging financial position could ignite more privatisation expectation of the agency which has a $76 million market capitalisation ahead of trade this morning.

John McGrath, who holds 26 per cent of the company, is now in a better position to lodge any bid, following his resignation last week from the board of the REA Group after 18 years. He holds $10.8 million REA Group shares which could be more readily sold given he was no longer a director the realestate website publishing group.

The internal documents show McGrath missed its internal forecast for earnings before interest, tax, depreciation and amortisation (EBITDA) by more than 80 per cent in the five months to November to generate $1.3 million instead of $7.8 million it had earlier expected. 

The documents reportedly show the McGrath balance sheet has been hit by a large depreciation of its rent roll asset (or property management operations).

Operational expenses met budget expectations.

But there was a blowout in doubtful debts and legal fees due to an increase in legal action.

McGrath's earnings are substantially below forecasts by equities analyst Bell Potter, which estimated the group earnings of $16.6 million in 2018.

The board indicated in an update to the market last November that the agency might miss analyst targets.

"FY18 earnings could be 20 per cent to 25 per cent lower than the current analyst estimate, due to high restructuring charges and a partial year of cost savings," the company said.

When approached by the Financial Review, McGrath declined to comment over the weekend.

"McGrath declined to comment other than to say the company is well aware of its continuous disclosure obligations which we take very seriously," a spokeswoman said.

The board, chaired by Cass O'Connor, has just five members including John McGrath. The other there directors are Elizabeth Crouch, Nigel Dews and Cath Rogers. Cameron Judson is the chief executive officer, Glynn Wright, the chief financial officer and Morgan Sloper, its head of corporate services/company secretary.

Several former Mcgrath executives have run a clandestine campaign of denigration against the group over the past year.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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