Hi,Like the other real estate agencies, Mac Grath results are...

Hi,

Like the other real estate agencies, Mac Grath results are driven by 1 major element : the volume of transactions.
This had a major negative effect on their results in FY 23, as the volume of home sales in Australia decreased by 20 % (for the market).
So, MEA revenues decreased by 27 % in FY 23 (- 21 % for their transaction volume and - 4 % for average price of transactions).
Given the operating leverage in their model, this 27 % decrease in their sales led to a 69 % decrease for their underlying EBITDA (6.1 m AUD).

Since the beginning of FY 24, I think that there is a recovery for the number of home sales in Australia.
I can't find figures for the total market, but I think that the number of properties sold on auction is probably a good proxy.
Based on Domain figures for auctions throughout Australia, the number of sales has increased by 31 % for the period July-Oct 23 (vs the same period last year).
However, there is some uncertainty regarding the growth of the total market, as ABS new mortgage lending figures gives a rather different indication, as they show that lending for new mortgages is still decreasing yoy in Australia.
Anyway, I think that the number of auctions is an interesting indication of transaction volumes for MEA, as 70 % of their agencies are located in NSW, while the number of auctions tend to reflect mainly the market in NSW and Victoria.
Based on Domain data, the number of homes sold on auctions in Sydney has increased by 51 % for the period July-Oct 23 (vs the same period last year).

MEA's revenues could also benefit from some rebound in average prices of transactions (as prices have almost recovered to previous picks).

What's a bit complicated in MEA's case is that the company is transitioning to a franchise model.
Going forward, we can't expect the same operating leverage that they had in the past.
MEA still has 21 company opened offices (vs 105 franchise offices), so they still benefit from some operating leverage, but not as high as previously.
It is not easy at this stage to forecast their EBITDA 24 due to this uncertainty.
Anyway, I expect them to have an underlying EBITDA (after lease) of more than 10 m vs 6.1 m in FY 23.

We should have a better visibility on the growth of their revenue and operating leverage, when the company gives an update during their next AGM (16/11). Their listed competitor (The Agency) will also have its AGM the same day, which will also give an interesting update regarding the market.