McGrath Limited (MEA)

McGrath Limited (MEA) is a residential real estate service provider in Australia. McGrath is an integrated residential real estate services business operating four business units that provide a range of services including residential property sales and management, mortgage broking, Franchise services and Training. McGrath operates a hybrid business model consisting of Company Owned Offices and Franchise Offices.

McGrath operates Company Owned Offices that provide high quality sales and property management services within its various operating locations. It generates revenue by charging the vendors of residential property a commission for successfully selling a property.

McGrath partners with franchise groups who operate McGrath branded offices. Each office also provides high quality sales and property management services. Franchise fees are largely consistent across the network

MEA's Oxygen Home Loans is a mortgage broker. It has a client base that services McGrath and non-McGrath generated referrals.

MEA initials listed at $2.10 in January 2016, since then the price has fallen to lows of $0.90 and is currently trading at $1.10. We are not recommending this company at this time although the recent price falls makes it look attractive.

The fall in the value of the company is directly related to the decline in the property market in Sydney and Melbourne. MEA has had to write down their pro forma full year earnings by $4 Million dollars on the back of a 25-30 per cent decline in listings in the Sydney’s north and north western suburbs.

Given that the property sector looks high and is expected to pull back over the coming years MEA is to high risk to invest in. It is a good example of how a solid company can be affected by changes in the economic climate.