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Why this small cap ASX share is zooming 10% higher today

share price higher

The McGrath Ltd (ASX: MEA) share price has avoided the market selloff and zoomed higher on Monday.

In afternoon trade the real estate services provider’s shares are up almost 10% to 34 cents.

Why is the McGrath share price zooming higher today?

Investors have been fighting to get hold of the company’s shares following the release of a greatly improved half year result.

During the first half of FY 2020, McGrath reported a 15% increase in revenue to $48.9 million. This was driven by an uplift in market sentiment and stronger clearance rates which offset softer listing numbers compared to the prior corresponding period.

Things were even better for its EBITDA. McGrath recorded positive EBITDA of $1.6 million for the half, up from an EBITDA loss of $2.5 million a year earlier.

It was a similar story on the bottom line, with the company recording a loss of $0.98 million, compared to a $9.6 million loss in the prior corresponding period.

Management advised that this turnaround was a reflection of the company’s initiatives impacting its bottom line. These initiatives include growing its footprint through three acquisitions and organic growth, optimising its company owned portfolio by consolidating unprofitable offices, and its investment in its Marketing and Technology (Martech) strategy.

In addition to this, it notes that over 32 real estate professionals who had previously left the company, have returned over the last 18 months.

Geoff Lucas, CEO of McGrath said: “I’m pleased to say that in the face of what has been a challenging property environment, our focus on talent development, improved customer service the execution of our strategy has allowed us to achieve solid results this half. Our Company owned sales division in particular has benefited from improved agent productivity and has contributed a strong uplift in revenue. As the market conditions improved in Q2 of FY20, we were well placed to capitalise on these positive tailwinds.”

“We have seen a strong start to activity in January 2020 with an increased number of vendors who have gone to market early and benefitted from strong demand and continued rising values during the last quarter of CY2019. We believe this will have a positive impact on vendor sentiment for the second half,” Mr. Lucas added.

Outlook.

Mr Lucas advised that improved market conditions from the end of 2019 have continued into 2020. This has seen strong clearance rates, fewer days on the market, and healthy buyer demand.

And while listing volumes remain below the prior year, this is continuing to contribute to stock shortage and solid price gains.

In light of this, management expects the turnaround of the business to continue in 2020, which will “manifest in the FY 2020 full year results.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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