Yes Barry things are even more interesting since my original post. I don't think they'd quite have $50m cash given the $6.5m invested into Honey Insurance. But let's say $45m cash by 30 June which means the whole business is being valued at $20m. The market is therefore assuming sustainable earnings of only $2 - $3m - which is what McGrath's top agents would earn as individuals. WTF indeed...the market is pricing this for Armageddon, as if the end of free money and a return to normal interest rates will cause the buying and selling and renting of houses to cease forever.
These are the auction results for yesterday: https://www.domain.com.au/auction-results/sydney/ A soft weekend due to the current hysteria, but note that McGrath makes up about 25% of all auctions reported! They're still a major force in Sydney property.
We've been through a big boom and yes business is about to get tougher for MEA. But people will still buy and sell and rent houses - yes, interest rates are rising but most households are 2 years ahead on their mortgages, unemployment is at record lows and banks are happy to lend. The current hysteria over interest rates will dissipate. And MEA should report $15-20m cash flow for the 21/22 FY.
My 2 cents: the key to getting the share price back on track is for John and the board to focus on running a lean and hungry real estate business that spits out cash to shareholders. They need to slash corporate overheads, grow the business by prudently expanding into new markets along the east coast, distribute healthy dividends to shareholders....and don't throw away any more cash on start-up punts! (I think the Honey Insurance gamble is a big factor in the sell-off). Importantly though, they need to regularly communicate all this to shareholders - a trading update would be good, together with a detailed statement from John about his strategy now he's back at the helm. When the market is fragile, it's all about trust.
MEA Price at posting:
39.0¢ Sentiment: Buy Disclosure: Held
