Tuesday 21 November 2017

A time for vital changes in tough market

The contrasting fortunes of Charles Gallagher's property firms reveal the need for more rigorous analysis of all planning and land purchases in future

Matthew Ho-mes, a privately owned UK construction company owned by Abbey chairman Charles Gallagher made a healthy profit last year while at the same time the one-time Tory Party candidate presided over a €54m loss at the Dublin-listed firm, according to recently filed accounts.

A second private firm he owns, Charles Gallagher Ltd, which states its principal activity as a residential housing developer in the south of England, even managed to book a profit of 44 per cent last year, although on a relatively small turnover of £9.9m (€11.8m).

Admittedly both firms have taken significant writedowns on properties and development land as the crash in the housing market and the wider economy walloped land values -- and Abbey.

However, Matthew Homes' profit margin of 21.65 per cent last year is in considerable contrast to Abbey's 55 per cent loss, which may prompt some head scratching from the latter's shareholders.

Despite the loss, observers say that Gallagher's approach has been vindicated somewhat given that Abbey has a war chest of €108m while housebuilder McInerney went into examinership last week amidst talks to try and ensure its survival.

For its part, Abbey appears to have moved swiftly to make writedowns of €78m during 2008 and 2009, while Gallagher's private companies acted similarly, writing down the value of their development land by slightly less at £51m.

Comparing the accounts of Abbey and the two Gallagher firms also reveals that between them Gallagher's two firms are sitting on £58m of shareholders' funds, which is almost half of Abbey's equivalent pot of about £128m.

But while Gallagher and his family own a 41 per cent stake in Abbey, smaller shareholders may wonder whether Matthew Homes may be a significant competitor in terms of vying for new plots of land on which to build.

The average sale price of an Abbey home in the UK was £134,400 last year, according to research by Davy Stockbrokers, and its recently built homes and apartments are in commuter towns in and around the south-east of England such as Milton Keynes.

'Abbey has been on the hunt for new plots of land to buy since late last year'

But both Abbey and Matthew Homes have built homes in Swindon in Wiltshire, in Northampton in the midlands and in Ipswich in Suffolk.

While neither the number of houses sold nor their average price is publicly available for Matthew Homes, it would appear to have built them in wealthier towns within commuting distance of London such as Reading, Basingstoke, Rickmansworth, Bromley and Gloucester. In addition, it seems to have built more apartments where the profit margin may be higher.

Also of interest to Abbey shareholders might be the fact that it and Matthew Homes are active in the plant-hire business. The past two years of Abbey's accounts show that in the 12 months to the end of April its plant hire division booked a loss of €780,000 on turnover of €10.1m, while the previous year saw it lose €1m on sales of €13.6m.

In contrast, the plant-hire division of Matthew Homes made a profit of £1.025m on turnover of £24.2m last year, producing a respectable margin of 4.23 per cent at a time when the demand for its business crashed to the floor. In 2008, its performance was even better, with a profit of 10.3 per cent.

What direction the two companies take now remains to be seen, but Abbey has reportedly been on the hunt for new plots of land to buy since late last year.

However, as austerity measures take hold in Britain it will arguably need to be rigorous in its analysis and planning of any land purchases, in the same way as a supermarket would when it plans where to build a new store, if it is to take advantage of any pockets of economic growth.

What seems to have contributed to the fate of McInerney according to analysts is that its unsold houses and landbanks tend to be in the less well-off regions of England that would tend to be more reliant on the public sector for employment.

While the south-eastern counties around London are undoubtedly a wealthy area when taken as a whole, there are nonetheless towns where that is also the case and analysts believe Abbey will need to try and avoid building in those locations as it looks to the future.

Sunday Independent

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