What Mattered Today: As safe as houses…! McGrath & Domain in the firing line

James Gerrish

The ASX 200 ticked back below the 6000 mark today, only to fade lower and close down at 5991. Some interesting corporate news primarily around the property stocks today with the surprise departure of Domain’s very well regarded CEO while John McGrath has had to contend with another profit downgrade and resignation of the entire board amid continued poor performance for Sydney’s Premier Real-Estate brand…! John will now step back into the fray on an executive level, has a clear plan to turn the business around and will let the numbers do the talking – so he says. More on that later.

Overall, the Consumer Staples were strong, while on the flipside, the Retail and Financials had another poor day capping off a fairly soft weak. An overall range today of +/- 26 points, a high of 6017 and a close to its low of 5991, down 13pts or -0.23%

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

CATCHING OUR EYE

1.McGrath (MEA) 0.50c / -13.79%; Without sounding overdramatic, the listing of MEA has been a complete debacle and the downgrade today seems to be a result of an AFR article that exposed a pre-Christmas internal update highlighting poor performance. That closely followed a November 6 2017 downgrade which cut expected earnings by 25% - the shares plummet on that day – but rebounded fairly quickly. Will the same play out now?

The shares listed at $2.10 in Dec 2015 and closed today at 50c – John McGrath still owns 26m shares after cashing in $37m in the original float, which saw his stake go from 58.4% down to 26% today. As with most businesses, but more so a real estate agency, earnings rely on agents driving them and it seems that McGrath has become too focussed on running a listed company, than on the things / people that drive earnings. That will change, there’s nothing that spurs action like an entrepreneur losing a lot of $$ and John McGrath is a very talented operator. The drop today in share price is small relative to the earnings miss, with some holders reluctant to sell given the potential for a privatisation of the stock with the help of private equity. The last block trade was done by departing agents with 15% of the company being sold at 65cps.

McGrath Daily Chart

2.Domain (DMG) $2.75 / -17.17%; the announcement of high profile CEO, Antony Catalano, sent investors packing today in both Domain and its, old controlling company Fairfax (FXJ), off 9.72% to 65c. Antony is leaving for ‘family reasons,’ opting for a quick break up with no handover period, and the heavy fall today may well be due in part to investors not buying the excuse, although Antony does have 8 kids. The weakness also reflects that Antony is Domain. Catalano, first fired from Fairfax in 2008, set up his own Real Estate publication with which he was bought back into the Fairfax set up just 3 years after being walked out. Since being appointed CEO in 2013, Domain has gone from strength to strength, culminating in the company being spun off late last year. Now just 3 months later, the mkt is bound to be sceptical of the CEO exiting stage left. We do not own FXJ or DHG.

Domain Holdings (DHG) Daily Chart

That’s all for today….

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Have a great night

James & The Market Matters Team

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About this contributor

James Gerrish

James Gerrish

jgerrish@shawandpartners.com.au, Market Matters / Shaw and Partners

James is a Portfolio Manager within Shaw and Partners heading up a team that manages direct equity and option portfolios. He is also the Primary Contributor to Market Matters, a daily investment report that offers real market insight.

Expertise

ASX:MEA ASX:DHG

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