€40m pre-tax boost for First Active

FIRST ACTIVE is to make a pre-tax exceptional gain of close to €40 million following the sale of its remaining stake in Britannic Money plc for €108.7m.

The move reduces the mortgage and savings bank exposure in Britain and fits in with its strategy of focusing on the growing Irish mortgage and savings market.

First Active finance director Michael Torpey would not be drawn on any possible use of the cash on the acquisitions front. When asked if First Active would look at NCB stockbrokers, which is being sold by Ulster Bank, Mr Torpey replied: “we do not comment on M&A (mergers and acquisitions) activity. Do not read anything into the no comment, it’s long-term policy not to comment.”

First Active sold its 40% of the ordinary shares and 100% of the preference shares in residential mortgage company Britannic Money plc to Britannic Assurance plc, which acquired a 60% interest in Britannic Money plc in September 2000.

“The strategy for First Active is focused on the Irish mortgage and savings markets and we are happy to dispose of our remaining stake in Britannic Money at this stage in our development,” added Mr Torpey. The investment in Britannic Money plc was recorded at €62.4 million on the balance sheet of First Active plc at June 30 2002.

Mr Torpey said that First Active plc had retained the right to preference share dividends up to 2004 which it has converted into a debenture.

Commenting on the deal, Davy Stockbrokers analyst Emer Lang said they had always suggested there was “hidden value” in First Active linked to the group’s put option on Britannic Money (BM). “The deal adds circa 1% to Tier 1 Capital, boosting the group’s surplus capital. Assuming a Tier 1 ratio of 7% at the end of 2002 suggests surplus capital in the region of €140m post this deal, or around 100c per share,” she added.

Retaining their buy recommendation on First Active, Goodbody Stockbrokers Len Riddell said they believed the timing of the deal is excellent, given the recent strength within and outlook for the British mortgage market.

“The disposal is fully in line with group strategy and leaves the stock as a focused play on the fast-growing Irish mortgage and savings market.

“Following recent strength, the enhanced visibility is probably priced in at this stage,” he said.

Trading in First Active shares yesterday reflected this assessment, as they remained unchanged at 5.30.

Mr Riddell said the transaction was likely to be earnings neutral.

“The transaction is likely to boost the group’s Tier by around 1% to around 11.5%, although the tax implications may have an impact here. The sales proceeds will form part of general liquidity and an update on capital allocation will be given at the end of January next year,” he added.