Dolmen predicts 33% upside for McInerney stock

IMPRESSED by McInerney Holdings latest trading forecast, Dolmen Securities have re-iterated their buy recommendation on the share predicting a 33% upside for the stock over the coming year.

Dolmen analyst Stuart Draper says McInerney’s, with a current market capitalisation of €73m, latest trading statement was very strong in advance of its full report for the year to be released in a month’s time.

He says the shares are worth at least é3.

“The update indicates that its full year results are likely to come in ahead of current consensus forecasts, mainly driven by a stronger than expected 25% year-on-year increase in Irish housing units built to 1,011,” he said.

Mr Draper says that with housing deposits on hand from 726 house buyers, a year-on-year increase of 134%, the home builder is justified in remaining “optimistic in terms of growth for 2003”.

“Such strong earnings visibility is particularly rare, and therefore particularly attractive, in the current uncertain global economic environment.

"The other main indication in this update is that McInerney is managing to maintain its housing margins in an environment of lower average prices by increasing the number of housing units it builds, thereby lowering the average cost price per unit from economies of scale,” he said.

Mr Draper also disclosed that McInerney is also likely to announce an increase in the proportion of earnings distributed to shareholders.

“McInerney now has a strong presence in the North West of England, with a total land bank of c.800 units, and the region offers substantial potential for further earnings growth, with a population of eight million people,” he said.

Mr Draper believes Irish demographic forecasts indicate annual demand for new houses at c.50,000 units over the next ten years, which should be further increased by reductions in the average household size. “Our current 12 month price target of 3 (33% upside) is based on 5.5x 2003 earnings per share of 55c.”