Domain Boss Quits, McGrath's Mass Resignations
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Is an infection in the property sector that emerged from the darkness yesterday to crunch the shares of newly listed Fairfax spin-off, Domain Holdings and listed real estate agency, McGrath?
Domain shares fell to new lows in its short, two month life as a listed company after the foundation CEO, Antony Catalano quit in odd circumstances (unexplained except for ‘family reasons').
That saw the shares lose 17% to end at $2.75. That was after a 10% slide from listing in early November to last Friday.
Fairfax Media shares went south as well, off 10% at 65 cents.
McGrath listed at a price of $2.10 and the shares were down 13.8% at 50 cents on the ASX yesterday - a big ouch for shareholders game enough to stay on.
Investors however treated the problems as specific to Domain and McGrath with shares of the REA Group, 61% owned by News Corp, rising modestly yesterday by 0.4% to $73.99.
McGrath shares lost almost 10% after the Financial Review reported on Monday morning that the company had lost $1.3 million in the five months to November.
That saw the entire board, including CEO, Cameron Judson quit, apart from founder John McGrath. Mr Judson resigned after less than 18 months in the role, while McGrath chair, Cass O’Connor, and current non-executive directors Elizabeth Crouch and Cath Rogers announced their intention to resign following an orderly transition period while board member Nigel Dews has already resigned.
“The cost cuts have gone as far as they can while leaving the company with the resources to benefit from market improvements,” said Ms O’Connor in a statement. McGrath said it anticipates full year earnings between $5.8 to $6.8 million after one off items. Stockbroker Bell Potter had forecast earnings at $16.6 million.
Mr McGrath said he was disappointed with the performance of the company over the past two years and it was time for a new approach. “Our investors and team have exhibited great patience and loyalty during this difficult time and I intend to work very hard to repay them for their confidence in the company. I have a clear plan to rebuild momentum but I will let our results speak for themselves from here,” he added.
But the big shock was the departure of Catalano from Domain.
There were no hint of any problems over Christmas New Year and a trading update issued by Domain at the same time as the departure announcement yesterday showed no change in growth.
Domain in fact gave the impression that revenue had grown strongly in the period to December 31.
"Domain will report FY18 first-half financial results on 19 February 2018. Based on preliminary, unaudited pro forma results, Domain is expected to report digital revenue growth of 22% against the same period last year and total revenue growth of 13%. This is consistent with the most recent trading update provided to the market on 22 September 2017.”
But there was no mention of how the company has been riding out the downturn in activity in recent months in its two biggest markets, Sydney and Melbourne. Nor was there any mention though of profit performance for the six months to December. Was that the reason?
Are there cuts coming if that profit performance turns out to be less than expected? According to the statement Catalano is leaving because of family reasons. Domain Chairman Nick Falloon who will act as Executive Chairman said in the statement:
“Antony informed the Board that over the Christmas break he had realised that the demands of his role and his absence from the lives of his family were proving more challenging than he had expected and he had decided to put his family first.”
And Catalano was quoted in the statement as saying: “When I re-joined Fairfax in November 2013, I made a commitment to my young family that I could be there for them and do the job. It has become clear to me that doing the job of a listed company CEO the way it needs to be done means that I am not meeting that family commitment. It was also becoming apparent that I needed to relocate to Sydney and that was something I wouldn’t ask my family to do because schooling and family requirements would see young family members living in different cities. As it stands I have been away from home for the bulk of each week and it’s not fair on the family.
“I understand and regret that the timing of this decision is unusually short from Domain’s listing. But having been in the role for four years, I resign knowing that Domain has a great management team in place and I have every confidence in them and the business continuing on its current stunning trajectory. Having worked with Fairfax Media and Domain for more than 26 years, I am proud of what has been achieved, most importantly seeing Domain grow into the formidable business that it is today, capable of being a stand-alone listed entity.
So to avoid any sniff of going to another job here or offshore, Mr Catalano will have to remain on the sidelines for quite a while. What is interesting is that there was no talk of giving a board seat to keep him in the Domain tent. What’s the betting that that search turns up one Greg Ellis as a prime candidate - he is of course a board member of Domain and for years played a major role in the rise of rival REA Group (61% owned by rival media group, News Corp) in Australia and then in Europe.
Ellis was been, briefly, part of the team US private equity group, Hellman and Friedman had assembled for its aborted attempt to buy Fairfax Media in mid 2017.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.