From Bell Potter:
BUY recommendation based on value of annuity businesses
Our BUY recommendation on McGrath is currently more based on the valuation of the annuity businesses (i.e. property management and mortgage broking) rather than the valuation of the whole company which includes areas with earnings volatility (i.e. company owned sales) that makes valuation difficult. In our view a conservative valuation of the annuity businesses is between $0.40-0.44 a share which forms a relatively large part of the current share price (i.e. between 60-66%). We believe this valuation of the annuity businesses provides some sort of downside protection to the current share price given only a relatively small valuation is being applied to the other parts of the company (i.e. between $0.23-0.27 a share). Furthermore, if we also include franchise services as another annuity business then the valuation increases to between $0.70-0.77 which is more than the current share price and supports our $0.80 price target.
