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Wednesday, November 13th, 2019

John McGrath's real estate IPO is looking more like a toxic CDO

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by April 17, 2016 General

The great Australian property crash of 2016 has come a little early for those who parked their cash in John McGrath‘s real estate IPO, McGrath Ltd. 

The real estate groupies who walked into McGrath’s front door with $130 million cash in December, probably should have noted the fact that Mr McGrath was walking out the back door with roughly $37.4 million of that cash. 

John McGrath, CEO of McGrath Estate Agents. John McGrath, CEO of McGrath Estate Agents. Photo: Edwina Pickles

Never mind, he still owned more than 36 million shares worth more than $75 million at the $2.20 IPO price, right? 

And the company founder sniffed out a bargain last month, snatching up another 317,000 shares at $1.35 each.

Illustration: John Shakespeare. Illustration: John Shakespeare. 

So let’s see which way our real estate guru swings this week when the company comes out of Friday’s trading halt. 

The board said it is currently reviewing the 2016 forecast “in light of current market and trading conditions. The trading halt is requested in order to allow McGrath time to finalise its analysis of information and review by the board.”  

It is fair to say that, if trading conditions matched what the company promised in its prospectus the shares would not have been suspended from trading at $1.30.

That’s what happens when you’re investing in what is essentially a leveraged bet on property, and then the market turns.

As Intelligent Investor’s James Greenhalgh said in October, before all the fun kicked off: “When avowed property market people decide to sell their businesses to sharemarket people, it’s the sharemarket people who should worry.”

Not that our man McGrath necessarily has a dud track record when it comes to stock market picks. 

He was one of the few who got in on the ground floor on a great little property play called realestate.com.au.

He joined as a director in 1999. 

It was McGrath who went cap in hand to Lachlan Murdoch in 2000 and brokered a $10 million deal that saved the small internet start-up from a dot com implosion.

The rest is history. In the last ten years alone the stock has gone from $3.50 to $55. 

By 2008, McGrath had picked up more than 2 million shares that would now be worth more than $110 million if he had held on to them – which is more than the value of his McGrath stake before its IPO. 

Unfortunately McGrath cashed in most of his REA shares in 2009 for $14.4 million.

Missing Linc

The very unconventional gas explorer conceived by Peter Bond, Linc Energy, has finally succumbed to the corporate paramedics.

The Singaporean bourse confirming on Friday that administrators have been appointed to the company roughly four months after Bond was shown the door. 

In hindsight, investors who were forced to sell the stock as it wiped its feet of the ASX and headed for Singapore, should thank their lucky stars. 

“A country as rich as we are, the fourth to fifth largest saving nation in the world, we have literally a trillion dollars sitting in banks… but the stocks outside the top 50 to 60 aren’t getting the full benefit of superannuation in general and funds under management,” said Bond at the time. 

And if anyone has seen Bond, CBD would love to hear of his whereabouts as it seems he has kept a low profile since his Linc exit. 

We can only assume he is still fixing up his Dunk Island resort many months after it was meant to be taking paying guests for the luxury spa retreat which has consumed tens of millions of Bond’s dollars without any sign of an opening date.   

Can bank

While Commonwealth Bank’s chairman, David ‘Modesty’ Turner is keeping a low profile, his message last year that it needs to be the ‘ethical bank’ is obviously reaching the troops. 

The latest communique from its share shop, Commsec, to its advisers is headlined:  How to build trust with your clients. 

“The financial decisions you help your clients make have the ability to shape their future, which is why it’s rare to have a client relationship where there aren’t emotions at play. With so much at stake, to start off on the front foot you need to quickly show clients that you’re a trusted source of guidance and support.”

Of course, it might help if they are not a client of the banks insurer, CommInsure. Oh, and if they are not a client of its wealth arm, that might help too. 

This trust thing is a tricky business.  

Got a tip? ckruger@fairfaxmedia.com.au

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