McGrath Group is a "sell" says float stockbroker Bell Potter

McGrath Group is a "sell" says float stockbroker Bell Potter
McGrath Group is a "sell" says float stockbroker Bell Potter

The stockbroker Bell Potter has moved to recommend its clients sell shares in the McGrath Estate Agent group.

The publicly listed estate agency jumped 1 cent in trade today to 51 cents.

The all time low was yesterday's 50 cents which followed board level turmoil which saw founder John McGrath take back the reins at the agency.

But Bell Potter now expect it to fall to 45 cents. Fellow stockbroker Shaw Partners suggests the share price could fall by half, again.

Bell Potter advised clients that it had lost its confidence in McGrath's ability to "forecast earnings."

It has downgraded its earnings forecasts for the next three years, predicting a loss in the 2018 fiscal year.

Meanwhile John McGrath has described the tumultuous start to the new year as the "best few days" of his life as he steps in to steer the business.

McGrath was fronting around 1000 agents and team members at the agency's annual "kickstart" event at Royal Randwick Racecourse in Sydney.

"We will be moving forward at a pace not seen before. This business has incredible greatness and resilience," Mr McGrath said, according to a copy of remarks provided to Fairfax Media by the company which now has a $72 million market capitalisation.

"We will be laser-focused, customer-centric, fast, agile and our innovative heritage will once again come to the fore.

''I have more passion and determination than I have ever had.”

“It’s the best few days of my life rather than what could’ve been the worst,” he said, thanking the team for their support.

Bell Potter, along with investment bank JP Morgan, underwrote the sharemarket listing of property agent McGrath in December 2015 at $2.10 a share.

Last January Bell Potter told its clients that McGrath shares were a "hold" with an 86 cent a share 12 month price target, having previously had the shares as a buy.

Broker Bell Potter upgraded its recommendation from a 'hold' to 'buy' at 61¢ a share in February last year. Analyst Chris Savage titled his February 2017 report on the stock "Calling the Bottom".

The much anticipated return of John McGrath to lead the McGrath Group was announced yesterday morning after a shock leak of its fall from profitability emerged in a Stockmarket update.

The stock market was told that McGrath was headed back to running the company he founded in 1988 in Paddington.

The statement read:

"As noted in November, part of Stage Two of the Company’s structural review examined costs in noncustomer facing roles, including among the Company’s board and executive management level and roles where key expertise was unlikely to be required in the medium to long term. That expertise includes material expansion of Company owned offices and growth-oriented M&A initiatives.

Pending interim executive chairman, Mr McGrath said “Like all shareholders I am very disappointed with the performance of the Company over the last two years.

"Now is the time for a new approach. Despite the challenges we have endured since listing, McGrath remains one of the best real estate businesses in Australia with outstanding talent throughout the Company.

"I am very excited and proud to once again be leading the team in the future.”

“Our investors and team have exhibited great patience and loyalty during this difficult time and I intend to work very hard to repay them for their confidence in the Company.

"I have a clear plan to rebuild momentum but I will let our results speak for themselves from here.” 

Chairman Cass O’Connor, who has resigned alonged with non-executive directors Elizabeth Crouch and Cath Rogers, said John McGrath was well placed to take back the reins.

The former McGrath franchisee Shane Smollen has also backed John McGrath to turn around the company he founded 30 years ago.

"There's no reason why John with the right management team can't turn around McGrath," Smollen, its third biggest shareholder, told The Australian Financial Review.

But The Australian reported Smollen has rebuffed suggestions that he is part of a plan to ­return embattled McGrath Real Estate to private hands.

He was McGrath's largest franchisee before selling his network of 10 Sydney offices back to McGrath ahead of the November 2015 IPO for $31.5 million in cash and $21 million in shares, reportedly the highest price paid for a residential real estate business in Australian history.

 

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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