Despite guiding to a lower FY22 profit, due to a one off $6m hit that was posted in the previous period, smallcap real estate firm McGrath (AXS: MEA) was still up 4.05% at the close today.
Abnormals aside, management also note that the last few months had been challenging for the industry courtesy of a spike in covid cases, the federal election, plus an interest rate hike, culminating in -17% drop new listings for April versus the same period last year.
Also down was the average selling price which dropped -0.5% in April, and management expects this trend to continue through May and June.
The company is now guiding to FY22 earnings of between $18m to $20m, the midpoint being approximately 8% above the previous year.
To the uninitiated. McGrath is an integrated real estate services business with 108 offices located throughout the East Coast of Australia.
Commenting on the latest market update, CEO John McGrath noted that with the previous cycle overheating, the company needed a breather to slow down the sustained price escalation.
“Everyone panics when things slow down or prices come back but if you look at history, these periods do not last long and prices rarely come back more than 8 to 9 per cent,” he said.
"In fact, when interest rates peaked at astronomical levels of 17.5 per cent around 1990, prices only retreated around 10 per cent."
McGrath expects "high single digit growth" in earnings for the financial year, and notes the company is in a very strong financial position.
The company has around $35m in cash on hand after investing more than $6m in corporate expansion and circa $1.3m in the current on market buyback program.
Based on Morningstar’s fair value of $0.80, the stock appears to be undervalued.
The share price has shed around half its market value since trading at around $0.65 mid-February and is down 36.89% for the year.
McGrath share price over 12 months.
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