Nobody should have been surprised by the successful flotation of auctioneers Sherry FitzGerald. With the shares in safe hands, following a private placing, there was little chance of short-term profiteering. Sherry FitzGerald did not make the placing available to the general public because it felt the issue, which sought to raise £4.5 million (€5.71 million), was too small. Instead, the shares were privately placed with institutions, employees, and clients of Sherry FitzGerald and Goodbody Stockbrokers. Therefore, anyone not belonging to this chosen club had to go to the market and buy the shares at a premium of more than 15 per cent on the placing price of 199 cents (157p). However, the issue has raised two questions. First, the prospectus was not available to the media until two days before the shares were quoted and well after the shares were placed. That inhibited comment prior to the placing. Second, the shares were floated on the basis of the 1998 results, which showed an incredible six-fold increase in profits.

The prospectus showed a pre-tax profit of £1.79 million for the year ended December 31st, 1998. This compared with a profit of £275,299 in the previous 16 months. Excluding an exceptional gain of £558,400 from the latest accounts and annualising the previous results indicated a remarkable 5.89-fold increase. Bonuses of around £1 million were broadly similar in each year, so they did not influence the percentage gain.

The figures raise two fundamental questions. First, has the company been floated on the crest of a wave? And second, is this short trend sustainable?

Both 1997 and 1998 should have been exceptionally profitable, particularly for companies connected with the housing and construction industries. A clue to last year's incredible growth lies in the effective £3.4 million increase in sales to £9.1 million. Obviously, with the firm having flotation in mind, there was a concerted effort to pull out all the stops. However, part of the exceptional growth came from the opening of new branches. Moreover, a big boost came from the commercial side of the business, which increased revenue by 66 per cent to £2.96 million. The group's sales and profit growth in 1998, of course, is not remotely sustainable. It has a bonus scheme of up to 20 per cent of profits for the senior executives, which is essential to maintain growth momentum. However, as it expands its network, thereby incurring extra central costs, it will not be surprising if the group manages only very modest growth this year. The focus then should be on 2000, when the group's performance will depend on the buoyancy of the housing market and on the success of its proposed franchising arrangement. The housing market should remain buoyant over the foreseeable future. Sherry FitzGerald claims to have had a 15.6 per cent share of the second-hand residential market, measured by posters, in 1998, while an Irish Times auction survey showed a 26 per cent market share, down from 28 per cent in 1996. A spokesman told The Irish Times that the firm had grown from the late teens and does not chase volumes. Profitability is more important and can be seen from the results, he added. However, margins could be tighter in the more competitive market, though they are fatter outside Dublin, where some of the expansion will take place. The success of the franchising will depend on how participants take to the idea. Under the scheme, the participants would have the advantage of using the strong brand name of Sherry FitzGerald and receive training and advice.

In return, they would give a margin of their turnover, understood to be in the region of 8 per cent, to Sherry FitzGerald. Some 15 of these offices are planned for this year and it is hoped there will be 40 within five years. Another area of organic development will be the commercial side. Sherry FitzGerald sees the tie-up with Debenham Tewson & Chinnocks Holdings, which took a 20 per cent stake in Sherry FitzGerald's commercial business in 1998, as a strong point in the development of this sector. The directors of Sherry FitzGerald have a strong incentive to keep the company on the growth trail: they own 33 per cent of the company, which is valued at €29 million (£23 million). The 12 per cent holding of Mr Mark FitzGerald, the group's executive chairman, is valued at €3.56 million (£2.8 million).

In addition, the directors and other shareholders, representing 76.6 per cent of the equity, have given lock-in undertakings not to sell their shares until after the preliminary results for the year ending December 31st, 2000, are announced. This means they cannot sell until early 2001. Clearly, Sherry FitzGerald, which has a strong brand name, will swing with the cycles in the property market, but the employee shareholders have plenty of incentives to push the company forward.