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McGrath Lowers FY16 Profit and Dividend Forecasts

McGrath Lowers FY16 Profit and Dividend Forecasts
Assuming there is no improvement in listings volumes, McGrath expects to generate $136 million to $140 million in revenue for FY16, and anticipates to post the pro forma EBITDA in the range of $26 million to $27 million.
Apr 18, 2016 By Kaivalya Kandarpa Tags: MEA

Local real estate group McGrath Limited (ASX:MEA) downgraded its FY16 guidance as it expects the subdued market conditions to continue until the end of the fiscal year.

The company states that its current market conditions remain difficult and does not expect any significant improvement with the volume of listings and sales in the upcoming quarter. McGrath anticipates the listings in the offices acquired from the Smollen Group, situated in the North and North Western Sydney, to be 25% to 30% lower in the final quarter of FY16. Moreover, listings in offices pre-owned by McGrath are expected to be flat to slightly lower than the Prospectus forecast for the quarter.

As stated in the prospectus, McGrath was set to pay a deferred consideration of $2.625 million for the Smollen acquisition if the business met its growth targets. However, McGrath anticipates that the payment is unlikely to made, given the performance of the business has been below expectations.

Assuming there is no improvement in listings volumes, McGrath expects to generate $136 million to $140 million in revenue for FY16, and anticipates to post the pro forma EBITDA in the range of $26 million to $27 million.

These adjustments were driven by a number of factors such as the continued reduction in Chinese buying activity, timing delays in regards with the launch of several project marketing developments and other postponements surrounding the implementation of new IT software and technology.

The company has no debt and anticipates to end the year with surplus cash.  Despite increasing the dividend payout ratio to 75% of NPAT for FY16, the board anticipates the dividend to decline from 4.5 cents per share to 3-3.5 cents per share. 

While McGrath struggles to forecast the conditions for FY17, it states that the long term fundamentals of the industry remain conducive, supported by historically low interest rates and population growth.

MEA will remain under a trading halt until tomorrow. However, MEA has declined significantly year-to-date, shedding 27%.

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Kaivalya Kandarpa Author: Kaivalya Kandarpa Apr 18, 2016

Kaivalya is an equity analyst and a client advisor at Wise-owl. She specialises in fundamental and technical analysis for large and mid-cap companies. Having completed her bachelor's degree in Business Administration majoring in Finance, Kaivalya has a comprehensive understanding of international stock market movements. She tracks local and overseas markets and compiles analytical reports for various industries.

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