Abbey may be next on the list to go private

Is Charlie Gallagher, the Abbey boss who once unsuccessfully flirted with British politics when he tried to win a safe Labour seat for Maggie Thatcher, going to be the next chief executive to take his company private?

The indications are that Abbey is on the short-list to follow Dunloe Ewart and Green into the private sector.

Abbey has been nice to its shareholders in the past year. The housebuilding group has spent more than €12 million (£9.45 million) buying back more than 3.7 million shares at prices between €2.60 and €3.59. It has also used another €18 million of its cash to pay a special dividend to shareholders.

Despite all that spending on shares and dividends, the strength of Abbey's housebuilding operations and its free cash-flow means that the group will probably end the current financial year next April with net cash of over €26 million. That amount of cash accounts for more than 20 per cent of Abbey's current market value.

But for all the strength of the business (who wouldn't want to be a housebuilder in Ireland these times?), the market doesn't seem to care and lumps Abbey in with the rest of the small-caps. Abbey is currently trading at little more than five times forward earnings, despite being cash-rich and with a landbank of 2,300 plots. One result of the share buybacks over the past year is that the Gallagher family's stake in the housebuilding group has crept up from 26 per cent to just over 29 per cent. That means that Abbey has limited leeway to buy back more shares without pushing the Gallagher family holding above the level that would force it to make a bid.

With the shares currently trading at €3.20, admittedly off this year's €2.40 low but still a long way short of the €6.03 high of two years ago, a buyout must be an increasingly attractive proposition for Charlie Gallagher.

Institutions, while disdaining Abbey as a plc, would still look for their pound of flesh from Gallagher if he makes a bid and any bid pitched at less than €4.00 a share is unlikely to be accepted.

That sort of price would leave Gallagher with more than €100 million to find to buy out the 70 per cent of Abbey the family does not own.

But the strength of the cash flow suggests that a financing package would not unduly tax the financial engineers and allow the chief executive and his management get rid of investors who think so little of the Abbey that they give it such a pitiful rating.