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Yesterday, I started my rundown of 50 of the most valuable private companies in Ireland. I valued a long list of more than 60 companies from the ground up, using available information to build a discounted cash flow model.
The goal was to learn which companies were valuable, and what made them valuable. Along the way I learned about the big trends in Irish businesses in recent years.
You can click here to read the first part of the list. And I recommend you take the time to read this separate piece, which explains how I valued the companies, what the valuation tells you and what it doesn’t.
34. The Stafford Group: corporate Habsburgs
The Stafford Group is headed up by Mark Stafford, the great-grandson of its founder J. J. Stafford.
The company got its start in shipping in the 1890s. From shipping it moved into groceries, and from there into coal importation. By the 1940s, The Stafford Group was the largest coal importer in Ireland.
Next the Stafford Group doubled down on fuels, building an oil storage facility at New Ross in Wexford. It also moved into plastic and fabric manufacturing.
By 2000, when Mark Stafford took over the management of the business, Stafford was primarily an oil distributor. He made the decision to divest into clothes retail in 2005, acquiring Lifestyle Sports for €60 million.
Since 2005 Stafford has sold off its oil businesses (partially to LCC, another company on the list). Now it’s a pure play clothes retailer.
What the Stafford Group has achieved here is unusual. Most companies arise to do one specific thing, serve their purpose, and then die. It’s rare for a company to sidle from one industry to the other, buying into a growing business while divesting from a shrinking one. They remind me of the Habsburg empire, which spread over the centuries from Austria to Spain to Belgium to Northern Italy, and back to Austria.
Lifestyle Sports is in good nick. It made €6.8 million in operating profit in 2019, and I’m forecasting growth to €9 million by 2021. This values the business at €74.7 million on a DCF basis, or €152 million using an industry multiple.
33. Fane Valley: Brexit-exposed food processor
Fane Valley is a big farmer’s co-op focused on Northern Ireland. It’s based in Moira, a village on the border of Antrim and Armagh. Fane Valley is a diversified food processor. It processes cereals, beef, duck, and lamb. Fane Valley was founded in 1903, and it still 100 per cent owned by 1,250 farmers.
It had a 50 per cent stake in Linden Foods, the northern Irish beef processor, with Larrys Goodman’s ABP Group owning the other 50 per cent. But Fane Valley sold its stake to ABP earlier this year.
Fane Valley is a business heavily exposed to Brexit. It sources meat and cereals from all across the island and sells it in the UK.
The business made £8.7 million last year, and I’m forecasting it’ll make £9 million this year. The DCF values it at €76 million in euro terms, or €122 million using the industry multiple.
32. Abbey Capital: Northside high finance
Like in the Pharma industry, Ireland is home to many of the world’s top financial services businesses. What it lacks is top class indigenous financial services companies.
Abbey Capital is among the exceptions. Based on Parnell Street on Dublin’s Northside, Abbey Capital was founded by Tony Gannon and Tim Brosnan. It manages what are called futures funds. One leg of its business is to sell its funds to institutions and private clients, the other is to trade its own money on the futures market. It uses, it says, a “short-term proprietary trading strategy aimed at generating profits while maintaining tight risk management control”. In 2020, about one third of pre-tax profits came from the in-house trading business, with two-thirds coming from funds managed on behalf of clients.
Abbey Capital is another highly efficient business. Its 60 employees are expected to make 13 million in operating income in 2021 — that’s €213,000 per employee. Gowan Group, by contrast, makes €19,000 per employee. And in balance sheet terms, Abbey Capital makes a 41 per cent return on capital employed. Its reinvestment needs are also low.
The DCF values Abbey Capital at €111.6 million, where industry multiple values it at €332 million.
31. John Paul Construction: big player, key industry
John Paul is a general contractor and another representative of Ireland’s biggest industry, the construction and engineering sector.
John Paul manages teams of subcontractors to deliver big projects. It has built a variety of big projects, from data centres to motorways, offices, apartment blocks and hospitals.
John Paul was founded in 1940 by John Paul and Tommy Simington. The business stayed in the family until it was bought out by management in 2002. It’s headquartered in Dundrum, and it employs 400 people.
John Paul is valued by the DCF at €100.2 million, and by the Ebitda multiple at €183.9.
30. Supermac’s: Ireland’s favourite chips
The first Supermac’s was in Ballinasloe, Go Galway. Now there are 118 of them across Ireland. It has expanded from burgers and chips to Papa John’s pizza, Bewley’s coffee, Habaneros Mexican, and Supersub sandwiches. The company also owns six three- and four-star hotels in the west of the country.
The company was founded by Pat McDonagh, and is headquartered in Ballybrit, outside Galway city.
Supermac’s made €25 million in operating profit in 2019. Growth is modest so I’m forecasting 2021 operating profit of €27 million. Based on that the DCF values Supermac’s at €108 million, and an industry multiple puts it at €387 million.
29. Dornan Engineering: the spillover benefits of FDI
Based in Littleisland, Cork, Dornan Engineering is another of Ireland’s highly profitable mechanical and electrical engineering businesses. It has benefited from years of high-tech investment into Ireland. Now it’s an exporter, delivering projects from Sweden to the UK.
Dornan was bought out by its senior managers Brian Acheson, Oliver Lonergan and Chris McGovern in 2005.
Dornan made €12 million operating profit in 2019. I’m forecasting €13 million in 2021, based on its recent earnings trajectory. It’s valued at €108.4 million by the DCF, and by €181 million using an earnings multiple.
28. AA Ireland: a nice insurance business
More than 300,000 people are members of AA Ireland. It’s a form of insurance — you pay AA, and it promises to cover you in the event of a breakdown.
In addition to breakdown cover, AA sells insurance, offers traffic advice, issues driver permits, and evaluates second-hand cars. It even has its version of the renowned Michelin guide, grading Irish Hotels and guesthouses.
AA Ireland had been part of the UK’s AA. But it was spun out into AA Ireland and sold to Carlyle Cardinal, a private equity entity, in 2016. It’s headquartered on South William Street in Dublin, and it has 480 employees.
AA made €14.6 million operating profit in 2019, and it would be expected to make €15 million in 2021, based on recent earnings. That values the company at €112.1 million using the DCF, or €202 million based on an industry multiple.
27. Bon Secours: Safe and valuable
Bon Secours Hospital Group is a private hospital group headquartered in Glasnevin, Dublin, with sister hospitals in Limerick, Cork, Tralee and Galway. It employs 3,320 people.
It was acquired in 2019 by the Bon Secours Mercy Health, an Ohio-headquartered US group that runs 50 hospitals.
Bon Secours has a fair bit of debt. The average company on this list can cover its interest payments 27 times from operating income; Bon Secours can cover payments only 2.7 times. Why all the debt? Hospitals tend to fund themselves with more debt than other industries. Aswath Damodaran, a finance professor at NYU, calculated last year that hospitals use more debt than 90 of the 94 industries he surveyed.
Why do hospitals borrow so much? Because healthcare isn’t a discretionary item. You can’t cut back on hospital visits when money is tight. That means hospital earnings are stable. And it means hospitals can fund themselves with debt without worrying that a bad year could wipe them out. More debt means more profit left over for shareholders.
Last year it made €2.5 million in operating profit, based on the trajectory of recent earnings I’d expect it to make €4 million in 2021. That values it at €119.8 million, or €187 million on an industry multiple basis.
Why is it valued so highly with relatively skimpy profits? It goes back to the fact that healthcare is non-discretionary, meaning earnings are less volatile, meaning they’re discounted by a smaller amount and therefore more valuable in the present. Supermac’s earnings are discounted by 16.9 per cent, whereas Bon Secours’ are discounted by 10.5 per cent. The discount rate makes a huge difference.
26. AMCS: Huge investments in growth
Advanced Manufacturing Control Systems, or AMCS, makes specialised software for waste management companies.
AMCS is based in Limerick City and its biggest shareholders are cofounder Jimmy Martin and Austin Ryan. Both graduated from UL before Martin joined Analog Devices, Limerick’s biggest high-tech employer.
AMCS is not a typical company on this list. The typical company on this list has stable earnings and revenues. If they’re growing, they’re doing so modestly.
AMCS, on the other hand, grew revenues 41 per cent between 2017 and 2019. And it’s ploughing money back into the business. It had an operating loss of €15 million in 2019, driven by big investments in R&D and acquisitions. In January 2019 it bought Germany’s Recy Systems and the following year it bought Trux Route Management of Canada. And earlier this year it bought Dublin’s Dataset Solutions. Combined investments in R&D and capex in 2019 came to €54 million.
The valuation model isn’t built to handle high-growth companies. So I’ve made some assumptions: that revenue will level out at €100 million, and that thereafter AMCS will earn the average operating margin for the software systems and application sector which is 24.2 per cent, for a forecast operating profit of €24.2 million. I’ve also assumed standard reinvestment rates for the software system and application sector of 33 per cent.
Under these admittedly speculative assumptions, the DCF values AMCS at €120.4 million, compared to €292 million using the industry multiple.
25. Dale Farm: Scale business
Dale Farm is a Northern Irish dairy Coop. Started in 1969, it’s 100 per cent owned by 1,300 farmers.
Dale farm owns the Dromona butter and cheese brands, Mullin’s ice cream, Rowan Glen and Spelga yoghurts.
Dale Farm made £12.3 million in operating profit in 2020, and would be expected to make £14 million in 2021. It made £12.3 million on a turnover of £486 million, a margin of 2.9 per cent. This goes to show dairy processing is both lucrative (£12.3 million is a lot!) and that it runs on tiny margins (the average operating margin among listed US companies is 9.5 per cent).
The DCF values Dale Farm at €142 million in euro terms; the industry multiple puts it at €143.
24. FP McCann: The outlier
When I was first valuing these companies, FP McCann seemed to stand out. It was more valuable than it seemed like it should be. Then I looked it up and saw it had been fined £25.5 million last year by the UK competition authority for fixing prices over a six-year period. That made more sense.
FP McCann is a family-owned quarrying business based in Magherafelt, County Derry. It employs 1,630 people.
We saw yesterday how, on average, Irish firms are taking longer to pay their suppliers. We saw that the effect is not broad-based, and is concentrated in a small few companies. FP McCann is one of those companies. In 2020, it increased the amount it owed to short-term creditors by 78 per cent, to £90.9 million.
FP McCann made £20.5 million in 2020 and I’m forecasting it’ll make the same amount in 2021. The DCF values the business at €145.6 million (in euro terms) or €255.3 million using an Ebitda multiple.
23. PM Group: Growing with pharma
PM Group commissions, designs and builds high-tech factories. Two-thirds of its work comes from the pharma industry, with the rest coming from food, medtech and other advanced manufacturing.
The company was founded in 1973 by Jim Walsh and Brian Kearney, two engineers. Headquartered in Tallaght, it has grown to employ more than 3,000 people. It has offices in Belgium, China, India, the UK, Switzerland, Singapore and the US. The company doesn’t break out the sources of its revenue geographically.
PM Group made €20.8 million in 2019. In 2021 I’m forecasting it’ll make €24 million. That values the business at €165 million, or €313 million using an Ebitda multiple.
22. Smyths Toys: Ireland’s new retail giant
Smyths Toys is surely Ireland’s biggest retail success story since Primark. It was set up by Birdie and Paddy Smyth in Claremorris in 1983. Selling toys was originally a side business at the Smyth family pub.
Now Smyths has 21 stores in Ireland, seven in Northern Ireland and 104 in the UK. The business was inherited by four of the sons, Tony, Padraig, Liam and Tommy, with Tony and Padraig most actively involved. They run it from the company headquarters in Galway City.
Then Smyths did an audacious deal to acquire 93 Toys’R’Us stores in Germany, Austria and Switzerland. The deal will bring its overall store count to more than 200.
It reported €19 million in operating profit in 2019, but once the acquisitions and store opening have been worked through I’m forecasting €27 million in 2021. That gets to DCF value of €181 million, or an industry multiple value of €510 million.
21. The Blackrock Clinic: Building an empire
Much has happened at The Blackrock Clinic since these accounts were updated on December 31, 2019. Larry Goodman has assumed full control of the company, having squeezed out co-founder Dr Joseph Sheehan in court. It then took full control of the Galway Clinic, and the Hermitage Hospital.
The accounts for Blackrock Hospital Limited and Subsidiary don’t show any of this. And, given Larry Goodman’s preference for secrecy, they may not even tell the full story of that hospital.
The company employs 750 at its hospital in Blackrock, Dublin. It made €11.8 million in 2019, and by 2021 I would expect that to reach €15 million. The DCF values the company at €188.9 million, and an Ebitda multiple values it at €301.3 million.
20. Lissan Coal Company: family-run fuel giant
Lissan Coal Company, or LCC, is Ireland’s biggest coal merchant. It imports coal, lump wood and anthracite and distributes them around Ireland. It also owns the Go chain of petrol stations, having in 2020 bought the Campus Oil service station chain from the Stafford family.
LCC is headquartered in Cookstown, country Tyrone, where it employs
170 people. It’s owned and run by the Loughran family.
Last year, LCC made £20.5 million, and next year I’m forecast it’ll make £26 million. That feeds through to a DCF value of €190.1 million (converted to euro) or €318 million using the industry multiple.
