Listed fund manager Argo Investments has become a substantial investor in struggling real estate group McGrath.
Argo, the second biggest investment company on the Australian Stock Exchange with a market cap of almost $5 billion, has acquired just over a million McGrath Limited shares since April - paying between $1.10 and $1.20 a share – to take its stake to 5.02 per cent.
Its the second major institution to see value in McGrath after listed investment manager and value investor, Perpetual, increased its stake to 13.23 per cent from 11.6 per cent in March, buying in at about $1.24.
Argo, founded in 1946 and once chaired by Sir Donald Bradman, is a is a long-term value investor. According to its stated investment philosophy, it "avoids the temptation to seek short-term gains in high-risk situations".
AFR Weekend understand the relative cheapness of the stock, sound McGrath business model and expectations of a 7¢ fully-franked dividend payout in FY17 were all attractive to Argo.
McGrath has had a difficult time since floating at $2.10 in December. The stock tanked on debut and then tumbled below 90¢ in April after the real estate group revised down earnings guidance as it felt the impact of lower stock levels in Sydney.
Many in the real estate industry believe the company was over-valued at IPO.
Founder John McGrath remains the biggest shareholder in McGrath Limited with almost 28 per cent of the company. He stepped down as chief executive last month following the publication of full-year results, handing the reins to former Chandler Macleod boss Cameron Judson
Shane Smollen, who sold his 10 McGrath franchised offices back to the company pre-IPO in exchange for cash and shares, has a 5.59 per cent stake while former chief operating officer Geoff Lucas owns more than 4 per cent.
Shares closed Friday at $1.18.
