In just one swoop, the resurrected property company Dunloe, controlled by Dublin solicitor Mr Noel Smyth, plans to propel itself into a group with more substance and more prospects. Who would have thought that a group valued at just £1.2 million by Mr Ben Dunne in 1993 could be valued in the region of £80 million when the proposed acquisitions are completed. However, it must be asked: has this been real or imaginary growth? The bulk of the increase is due to acquisitions and funding. Nevertheless, there has been a more modest, yet impressive underlying growth.

As all property followers know too well, it is the underlying asset value of the shares that matters. Prior to the restructuring of the balance sheet, and the Round One of acquisitions organised by Mr Smyth, the net asset backing was a mere 3.5p. The first few acquisitions, and a rights issue brought this up to 8p.

The one for two rights issue was at 10p per share. That obviously dragged up the asset backing for the shares but acquisitions and revaluations also played an important part.

Round two is now emerging and the formula is similar. The latest interim results announced on Friday, which showed an impressive rise in pre-tax profit from £26,613 to £450,406 in the six months ended June 30th, 1997, also indicated a further rise in the net asset backing per share to 11p. Now a proposed placing of new shares and open offer to shareholders, together with more acquisitions and revaluations, will bring this up to around 18p. (A pro-forma balance sheet of all the transactions indicates an asset backing of 11p but that does not include recent revaluations).

The new proposals, which will have to be approved by the shareholders, will catapult Dunloe into a much more diversified group. They are twofold; the placing and the acquisitions. The placing is straight forward enough. It involves the raising of £25 million at 18p per share and already 41 per cent of the issue has been placed. Mr Smyth has agreed to underwrite the remainder, which is being offered to existing shareholders on the basis of nine new shares, at 18p per share, for every five shares held.

The proposed acquisitions also look straight forward but all the properties are either directly connected with Mr Smyth or Mr Phil Monahan, a client. For that reason, neither Mr Smyth nor his wife, was involved in the negotiations on behalf of Dunloe. Dunloe proposes to acquire Cradder, a company jointly owned by Mr and Mrs Smyth, for 105.9 million new Dunloe shares at 20p per share, valuing Cradder at £21.18 million. Cradder is, in effect, being purchased at net asset value. But this is after a recent valuation by Harrington Bannon, chartered surveyors. The properties include Cork Farm Centre, Wilton Road, Cork; Elm Court, Boreenhanagh Road, Cork; units at the Square Towncentre, Tallaght; an industrial unit at Quarterstown, Mallow; Westside Shopping Centre, Galway; Poplar Square, Naas; investment and development property at Nutgrove Avenue, Dublin; sites at Dundalk and Drogheda; and the Bloomfields Shopping Centre in Dun Laoghaire.

However, by far the most valuable part of the portfolio, according to the valuations, is the 405 acres of development land at Cherrywood, Loughlinstown, Co Dublin.

The Cradder properties are valued at £57.7 million (this excludes debts) and Cherrywood accounts for £28 million of that. Clearly, how Cherrywood develops will have an important impact on Dunloe.

Cherrywood generates no income. It has planning permission for an 18 hole golf course, a planning application has been lodged for a 22,641 sqare metre business park and around 64 acres has been zoned for a science and technology park. Dunloe says the land will be developed over a ten year period, with an initial phase starting in two years time, so there will be no instant return. Overall, with gearing expected to be down to around 80 per cent by the year end, Round Two should add real value to Dunloe. The management structures and incentive schemes appear to indicate that there will be further significant development ahead. Mr Stewart Harrington, managing director, for example, received options over 1.68 million shares last year at 23p per share, or 5p above the open offer price.

The share price, however, has borne little resemblance to the company's core value. The shares were suspended at 35p last June pending an announcement of the acquisitions, which represented an unreal hope value. In contrast, the shares in Ewart, the Belfast property company in which Mr Smyth has a stake, have been trading at a discount, of around 20 per cent, to the share price. Ewart is valued at just £20 million.

Had Dunloe made a bid for Ewart in the past, it could have been described as opportunistic. However, after it completes Round Two, it could absorb the Belfast company in its stride and improve the quality of its portfolio as well.