McGrath Estate Agents is selling shares in its float at between $1.80 and $2.25 each, creating a real estate chain with a market value of between $254 million and $295.7m.
The pricing equates to between 12 and 14 times its forecast net profit for the 2016 financial year. McGrath, one of the leading residential real estate chains in Australia, is embarking on its management roadshow this week for an initial public offering through joint lead managers JPMorgan and Bell Potter and adviser Luminis Partners. The IPO of the agency is set to raise between $121.2m and $135.2m, according to path finder documents released to fund managers.
The float of McGrath, founded by John McGrath, largely represents a play on the property cycle — some still see ongoing buoyancy albeit pricing coming in at a slower rate. However, others see a slowdown ahead, particularly as regulators clamp down on investor lending by banks.
Against softening clearance rates, those close to McGrath have been keen to emphasise the agency’s earnings resilience even when housing markets come off their peak.
With a strong footprint in Sydney and Canberra and a stake in the southern Queensland market, there is further room for growth in a highly fragmented market.
More acquisitions are also on the cards, particularly when it comes to McGrath’s long-held desire to push into Victoria.
Westpac for one is optimistic on the outlook for Sydney’s housing market, noting that long-term dynamics such as population growth and undersupply of housing stock will support pricing.
Under the McGrath offering, between 60.4 million to 67.8 million shares will be issued.
Of those, about half, or between 29.4 million and 36.8 million, will be issued by McGrath.
The McGrath bookbuild is due to take place on November 12.
The prospectus will be lodged on November 16, before the company lists on December 9.
McGrath’s annual dividend yield will be between 3.6 per cent and 4.1 per cent.
Its enterprise value will be between $244m and $286m.
The real estate chain, run by its high-profile founder Mr McGrath, has 73 offices and had $12.3bn in residential sales during the 2015 financial year.
It is a company being pitched as something of a roll-up story, with McGrath recently buying the largest franchise group within its network owned by Hunters Hill-based agent Shane Smollen, consisting of 10 offices across northern Sydney, in a cash-and-scrip deal believed to be worth at least $50m.
This article first appeared in The Australian Business Review.