First Active shares fall as firms sue

SHARES in First Active fell by over 3% to 4.75 in Dublin yesterday.

The former building society's shares lost 15 cent as news broke that it is being sued for €100 million.

The case is being taken by three property companies Moorview, Valebrook and Salthill Properties that form part of the Cunningham Group.

Cunningham is a west of Ireland-based group that has been in receivership for the past three months. Ray Jackson of KPMG was appointed receiver and the group at the time had debts of €28 million.

It is understood the directors of the company are taking the action against the former building society. Allegations against the lender include negligence, breach of contract and misrepresentation.

In their action, the companies are also seeking a declaration by the High Court that First Active acted as a shadow director of the companies.

First Active refused to comment when contacted yesterday.

In a brief note on the company yesterday, Len Riddell of Goodbody Stockbrokers gave the shares an add recommendation despite the weekend disclosure of the pending legal action and before the shares fell.

Mr Riddell said First Active should be worth more and he has put a price target of €5.50 on the stock.

First Active comes out from its five-year protective period next month and is regarded as a prime takeover target.

Potential suitors in the Irish market include Irish Life & Permanent and Bank of Scotland.

British interest in the group, which has been growing its share of the domestic mortgage market quite strongly in recent months cannot be ruled out, although a bid from a company operational in the Irish market is seen as most likely.

In recent months, up to 20% of the home loans in Ireland were sold by First Active and that should push up the group's market share from 12% at the moment to well above that figure before the year end.

The group is regarded as an attractive takeover prospect given that its Loan to Value Ratio is just 65%, regarded as quite low, given the aggressive nature of its lending policy.

In effect, this enhances the asset quality of the group and makes it quite an attractive target should IL&P or Bank of Scotland come knocking on its door in the months ahead.