From The Australian:
McGrath Estate Agents is selling shares in its float at between $1.80 and $2.25 each, creating a real estate chain with a market value of between $254 million and $295.7m [with a dividend between 3.6% and 4.1%].
The pricing equates to between 12 and 14 times its forecast net profit for the 2016 financial year.
The float of McGrath, founded by John McGrath, largely represents a play on the property cycle…Against softening clearance rates, those close to McGrath have been keen to emphasise the agency’s earnings resilience even when housing markets come off their peak…It is a company being pitched as something of a roll-up story…
Appears strategically confused to me. If it’s a roll-up play then why is it throwing capital out in a dividend? Such a high growth strategy should retain capital during its growth phase yet deliver a high forward multiple in turn generating the scrip value to enable its goal of much higher future earnings. A forward P/E of 13 is weak versus the current bourse average of 15x. Without scrip value McGrath is going to need to take on debt for its roll up or not do it at all, and either way that will increase its risk profile given its strongly cyclical underlying earnings.
Let’s face it, the McGrath turkey has been fattened for too long and has badly missed the up cycle. That’s a double black mark given it is supposed to have management that knows the market better than anyone else and because the business is now left uncomfortably straddling diverging strategies in an attempt to appear robust as the cycle turns against it.
This looks more like a mad dash to cash out than it does a well thought through IPO.
