ASX Small Cap Favourites: McGrath Limited
McGrath shares have flat lined at around the $1.20 per share level over the past few weeks and sitting right on point as of the time of writing. The market has now digested the full year result. There were no nasty surprises, which may have brought some comfort to investors predicting another downgrade. Our feedback suggests momentum in the key markets which McGrath operates is somewhat mixed. Prices and auction clearance rates in the Sydney market are relatively healthy, but the pipeline of new apartment projects which McGrath does have some exposure to, is no doubt slowing.
The business is likely to offset volume declines by expansion. We had originally that McGrath would expand its franchise model – recruiting talent to roll out the branded stores. But feedback we’ve received suggests McGrath is more likely to start consolidating other brands into its multi-brand umbrella. There is room for a consolidator in the domestic property market – buying proven businesses on a certain multiple and raising equity on a higher multiple. The gap can create shareholder value, but usually over a short period of time.
Eventually acquisitions come home to roost and building up intangible assets on balance sheet has proven many businesses wrong in the past – particularly transactional businesses. Either way, the market will be watching McGrath’s next move closely. It needs to be large, convincing and as part of a well explained strategy. Otherwise, the stock is likely to languish in the coming months and trade on sentiment in the underlying property markets in which it operates.
Invast is very well placed to bring you some huge opportunities in the coming months. Execution costs for ASX stocks are 0.06% (6 basis points) above minimum charge, which means for a trade with a notional exposure of AUD 10,000, the applicable commission is only AUD 6.00.
To be onboard with the full set of benefits, you need to become an Invast client.
Chief Market Analyst
Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia. The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.
Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.