McGrath Ltd (ASX: MEA) shares are on the rise today after the company provided a trading update. At the time of writing, the McGrath share price has surged 8.33% to 45.5 cents today. This comes after the company reported its earnings will be in the range of $6 million to $6.5 million for the first half of FY21 – an increase of $4.7 million on the same time last year.
What else is moving the McGrath share price?
Investors are driving the McGrath share price higher as the property services provider advised, with its projected earnings, dividend payments are now a possibility from the first half of FY21. It says that the strong projection is a result of a relatively robust residential real estate market driven by historically low mortgage rates. The company expect these low rates to continue.
McGrath also reported a strong balance sheet with $22.1 million in cash, compared to $10.2 million in FY19 – and no debt.
It says that both transaction volumes and average selling prices across the McGrath network throughout different states have exceeded the prior year in the first four months of FY21.
McGrath chief executive, Eddie Law, however, offered some caution on what lies ahead. He said:
We are satisfied with the continued recovery of earnings, amid an improved outlook on property price movement from six months ago and a long-term low interest rate environment. Looking forward, there remains much discussion regarding the impact of house prices in the media, and there is now an improved outlook on price movement from six months ago, however sale transaction volumes remain a key driver of the McGrath’s financial results.
With the scheduled end of JobKeeper and deferred mortgages programs still yet to be determined, along with other macro factors impacting consumer confidence, there is still uncertainty as to whether the momentum evidenced in the first half of FY21 will be maintained in the second half results.
What McGrath did to turn things around
Earlier this year, McGrath implemented some major cost cutting initiatives in response to the slowing market caused by the pandemic. At the time, the company announced its board members were to have their remuneration cut by 40% for three months between May and July. At the same time, 120 employees who earned more than $70,000 a year would take a 30% pay cut in exchange for working 30% less over the same three-month period.
As a result of these measures, the company had reported improved full year earnings of $3.7 million in FY20, compared to a loss of $6.4 million the year prior. Today’s half year earnings projection of around $6 million provides another signal that the company is on a turnaround phase.
The McGrath share price in 2020
The McGrath share price started the year trading at 33 cents, before slumping to a low of 15 cents in March. Since then, the housing recovery has helped its share price to rebound.
The McGrath share price reached its 52-week high of 46 cents today. However, it is still much lower than its debut initial public offer (IPO) price of $2.10 in 2015. The company currently commands a market capitalisation of $70 million.
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