McGrath Shares Plunge on Revenue, Operating Profit Forecast Cuts

  • Company says it sees `unforseen' low volume of sales in April
  • The performance of acquired business is lower than expected

McGrath Ltd. plunged in Sydney trading after the Australian real estate agency that made its debut on the share market in December cut its full-year 2016 earnings forecast, citing a decline in new sales listings in April.

The stock tumbled as much as 34 percent and was 27 percent lower at 95 Australian cents as of 10:49 a.m. local time. The shares have sunk 55 percent since they first traded in December, marking the worst debut for an Australian initial public offering above A$100 million ($76 million) since January 2015. The benchmark S&P/ASX 200 Index is down 0.4 percent in the period. 

Total revenue for the year ending June 30 is expected to be A$136 million to A$140 million compared with A$141 million it estimated in the initial public offering prospectus in November. Operating profit for the year is now seen at A$26 million to A$27 million compared with A$31 million predicted earlier.

The company, which has never traded above its debut price of A$2.10 a share, is bearing the brunt of a cooling property market especially in its main hub of Sydney. The city’s median home price, which reached a record A$800,000 in October, has dropped to A$730,000 as of March, according to research firm CoreLogic Inc., as demand has been hurt by a regulatory clampdown on mortgages, which led banks to lift their home-loan rates. 

“McGrath has continued to experience an unforeseen low volume of listings and sales in the first half of April, particularly in the North and North Western suburbs of Sydney,” it said in a statement. “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 volume.”

It also said residential listings from Smollen Group, which it bought in December, could be as much as 30 percent lower in the three months to June 30 compared with expectations in November. McGrath used a part of the proceeds from the IPO, arranged by JPMorgan Chase & Co. and Bell Potter Securities Ltd., for the acquisition of Smollen.

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