Michael Foster
McInerney Properties (Mac & Ernie to its friends) is not yet the hottest property on the Irish stock market. The joint honours currently go to a tiny thing called Glen Abbey, now under the aegis of Michael Norris, and Dwyer — rapidly expanding in Britain courtesy of its likeable new boss Desmond Bloom.
But there is no doubt that in months to come the company, currently valued at £31.24m with the shares at 220p, will become a force to be reckoned with under its new chief executive Dick Chenery, who recently moved over from Trafalgar House.
He has further developed plans to reduce McInerney’s exposure to the troubled Irish economy and the Middle East. UK housing and property will become a mainstay for the group with the help of the recruitment of Geoffrey Anderson (ex Laing Properties) — and new expansion in time-sharing is also on the cards.
McInerney is the creation of Ambrose McInerney — “Amby” to his colleagues — and brother Dan, both of whom are still on its board but close to retirement. They are the sons of an Irish farmer called Thomas, who carried out bridge-widening work for Clare County Council and saw Ambrose take on water-treatment contracts around the country as soon as he came of age.
After the second world war the McInerneys started housing work. In 1949, they took on their first Dublin job — a housing scheme in the Ballyfermot area with a tender price of £998 per unit.
Local council work became a mainstay for group operations. In Ireland, such work has traditionally been heavily subsidised by the state, with rents in Dublin for a sizeable property still pegged as low as £1.50 a week and great incentives, currently £9,000 a time, for people to buy new homes.
Private housebuilding work soon followed public, with McInerney eventually becoming the biggest builder in Ireland. Recession in the mid-1950s did not cause the company to put up the shutters, though it did have to go to Britain to make fresh headway.
The boroughs of London then became a stamping ground for McInerney, who took on prestigious schemes like the vast concrete council estate for Camden council at Alexandra Road.
McInerney also expanded on the civil engineering front. It became known as Ireland’s Wimpey, and after the oil crisis of 1974 went to the Middle East to look for work. The first contract to build 25 houses in Bahrain went well, despite a late delivery of pre-cast panels from Ireland. Problems arising from losses on timber stocks carried by its former joinery shops in Dublin and Capincur were soon a thing of the past.
After the Bahrain contract, McInerney was asked to build a 10-storey office block by Gulf Air. It started putting up temporary accommodation for oil companies in the Middle East and refurbishing commercial buildings in Saudi Arabia.
The Arabs soon learned to trust McInerney: one of its local partners is a backer to its current Four Seasons time-share scheme in Quinta da Lago, Portugal.
“Once a Middle East businessman trust you, he trusts you,” said Ambrose. “They see how we tackle the strains and stresses. So far as they are concerned our word is our bond.”
Middle East work has been hard to come by in recent years, because of falls in the oil price. It has also led to a recession in Houston, where a housing project for McInerney taken on in the early 1980s proved to be a disaster. McInerney had to make provisions against Houston of nearly I£1m in the calendar year 1984.
Given the decline of Irish industry, and also the slump in oil, McInerney did well to turn in pre-tax profits of I£3m in 1984, before the Houston provision. Turnover was I£73m, and the 5 punt dividend held. One Irish pound is now worth 90p in sterling.
UK housing turned in an excellent performance in 1984. McInerney also completed its first retirement home scheme. The letting and sale of an office scheme in Tunbridge Wells was a useful coup, and the company also built its first shopping centre at Shankill in Ireland. Gas and water pipeline contracts helped the civil engineering division, and McInerney took a 40% stake in the Farr construction group of Wiltshire.
Time-share — booming market
Through 1985, McInerney made strides in the development of its Portuguese time-sharing resort. It had bought a site in the Algarve (where Ambrose has had a holiday home for many years) in 1982 from a colourful Polish businessman raised in Brazil called Andre Jordan — and finally won planning permission two years later.
From day one, McInerney has set out to turn that land into one of the classiest resorts in Portugal, with 96 units, squash courts, sauna, gymnasium, snooker halls and swimming pools thrown in. The Quinta da Lago golf course is on the doorstep; a beach is less than a mile away. Late last year, the magazine Irish Business calculated that after costs McInerney could make £11m by selling holiday homes on a week by week basis.
So far, McInerney has sold half the weeks available, evenly spread on a high- and low-season basis. Their price ranges from £6,000 to £11,000 per week and the associated service charge is £150.
In mid-1985, McInerney also won a UK listing for its shares, which soon began to rise from a low of around 65p, courtesy of enthusiastic backing from brokers Fielding Newson-Smith (now part of Nat West Bank’s County Securities).
The year to December saw Portugal beginning to make a contribution to revenue, though a boom in UK housing profits was more important in keeping pre-tax profits around I£3m. It is difficult to see exactly what came from where, owing to McInerney’s reluctant to break down its revenue figures (something which it needs to start doing soon to gain a full City following), but it is clear that Ireland and the Middle East remained depressed markets.
Things in the Middle East (particularly Qatar) picked up in the half-year to last June, when group profits rose to I£1m, though a higher tax charge kept earnings per share unchanged. “Two-thirds of group activities are now outside Ireland,” said Ambrose McInerney — important when you consider that, by now, Ireland’s national income is capable of doing little more than covering interest on its national debt.
News of the appointment of new group chief executive Dick Chenery broke in October 1986.
Mr Chenery is 48 years old, with three children. After a short stint in a bank when he was young, he cut his teeth in the building world with a firm called Howard Farrow. In 1971-73 he worked for Remo Dipre’s Starwest group and helped build up its well-known Epsom shopping-centre development site, later sold to William Stern amid some controversy. He also had a hand in the foundation of Fairbriar homes, which now has its own stock market quote.
Working with Dr Dipre gave Mr Chenery some interesting experience. He then joined a construction group called Llewelyn, and set up its major Milton Keynes operation.
Experience shows
In 1978, Mr Chenery joined Trafalgar House, where he became a director of Trollope & Colls, and turned around its newly acquired Young Austin & Young mechanical engineering division. He instigated Trafalgar House’s bid for Haden, the air-conditioning specialists, in the mid-1980s before being head-hunted by the McInerneys, who applied themselves to the problem of finding management sucession as they approached retirement with far more energy than most.
Mr Chenery is full of praise for the business base built by the brothers. “McInerney has got plenty of good trading stock, and good people,” he says. “The long reins of control over operations is refreshing. Informal communication between all divisions can be relied on.”
After a thorough review of operations, Mr Chenery is keen to expand McInerney’s time-sharing division, recently supplemented by the purchase of more land at Quinta da Lago which could lead to the construction of another nest of 110 units for time-sharing and full ownership.
He is willing to take on further schemes on the Mediterranean and reckons that though bad publicity became attached to the marketing of other people’s schemes around the world, it should not hold back progress for luxury projects like McInerney’s.
Changing fortunes
In Ireland, McInerney looks unlikely to take on the construction of many more than 250 homes this year — a shadow of the former programme. Mr Chenery still sees potential for his Irish civil engineering division, particularly after its successful tender for a scheme to supply water to Dundalk — won in a test case despite initial objections from the EEC Commission that a tender using Spanish pipes should have been more carefully considered.
But it looks unlikely that Ireland will be a major source of McInerney profits in the near future, particularly with an austerity budget from Charlie Haughey’s Government on the stocks.
The contribution to profits from Ireland this year is likely to be fairly minimal by past standards, though McInerney has just bought a high-yielding shopping centre in northern Dublin from a bank which took the property over when the Gallagher property empire collapsed. That deal — for shares — dilutes the McInerney family shareholding in the company to under 50%, and gives McInerney solid Irish earnings to offset against advance corporation tax.
Mr Chenery aims to keep operations in the Middle East at least ticking over, with Qatar still proving a happy hunting ground. The future for operations in countries like Saudi Arabia, where work is in particularly short supply, is up in the air.
As for the US, McInerney still has tax losses accrued as a result of the Houston escapade, although Mr Chenery does not rule out a return to that country when the time is right.
Britain is the priority area for expansion, with our property and housing boom in the South still in full swing. Construction of around 600 houses a year is on the stocks, under ex-Barratt man Joe Pincott. Plymouth, Exeter and Southampton are typical areas for operations.
A key scheme in Carshalton is under way, hard on the heels of completion of an important one at Thurrock.
McInerney’s UK houses typically sell for around £50,000 to £75,000. Mr Chenery is interested in starting an up-market housing operation. He also aims to maintain some profitable work with housing associations.
On the UK property front, Mr Chenery is starting from small beginnings, though the appointment of Mr Anderson should get operations moving more quickly fairly soon.
At Haywards Heath, McInerney is working to build six individual office units with net areas ranging from 2,330 sq ft to 5,500 sq ft. The scheme, called Heath Square, is pretty close to the local station, and the proposition was introduced to McInerney by a small property company called Burad, which is being knocked into shape by Robert Noonan of Marler Estates (owners of Chelsea, Fulham and QPR football grounds, and new backer to the Ecobric building company which tried and failed to demolish that tower block in Hackney some time ago).
McInerney is also constructing nine individual office buildings and a block of two bed-roomed apartments over shops in Fulham Broadway. It hopes to resell the space to owner-occupiers: the agents are Boston Gilmore.
At Hounslow, McInerney is aiming to build a 25,000-sq ft office development with Trevor Osborne’s fast-moving Speyhawk in the very near future.
It has just failed to clinch a refurbishment project in the West End. At this stage, McInerney does not aim to take on the construction work to any of its property schemes.
McInerney’s balance sheet would now have net assets of something over I£16m (around 110p per share), which are well capable of supporting its moderate level of borrowings despite the possibility of write-offs in Ireland and the Middle East
But the company is judged on the stock market as an earnings play, and a prospective I£3.5m for the year ended in December indicates an earnings multiple on the shares at 220p of around 14.5 which would reduce to 11.5 on conservative estimates of I£4.5m for 1987. The dividend yield is under 3%.
In this era of property hot stocks shooting to the sky, McInerney’s rating looks undemanding to say the least. As a speculation on affable Mr Chenery’s abilities, they represent excellent value.
