View from City Road: Don't discount Union's recovery

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The Independent Online
THE KITCHEN sink has gone, but not the drama. George Blunden, the chief executive brought in to sort out the mess at Union Discount, has exercised the newcomer's privilege of writing off everything in sight to give a new, lower base from which to grow the company. When he said he had written off the kitchen, its sink and a lot more besides, he meant it.

But the question hanging over Union since it gave a foretaste of yesterday's first- half loss of pounds 14.8m before tax has been whether there is anything much in the business to save. The City appeared to think not, trading the shares down to a low of 40p against a net asset value of 216p a share. This is a bigger collapse than is warranted by the absence of an interim dividend and uncertainty over the final.

Some people see the end in sight for a company that diversified disastrously out of its core business as a discount house trading in the money markets into leasing and property. The markets have also got much tougher in recent years as the motherly protection of the houses by the Bank of England has weakened.

Mr Blunden, son of a former deputy governor of the Bank, has had the traditional top hats some Union executives sported until recently relegated to a dusty shelf. As former head of Warburg's discount house, he came from one of the two upstart firms the Bank allowed to compete with Union.

In fact he has not inherited anything like the mess the company seems from the bare loss figure. More than half the pre-tax loss, pounds 7.9m, is exceptional, covering redundancy and closure costs, property and computer write-downs. Leasing losses of pounds 5.7m are because of bad debts, but the Sabre subsidiary is now reasonably provisioned and Union has also returned to a cautious 100 per cent provision for deferred tax (from 50 per cent), bringing a pounds 5.1m charge.

A sale price has been agreed for a foolish Edinburgh property investment. In the discount house itself, pounds 2.8m of the pounds 4.2m loss is new provisions on old bad debts. Mr Blunden is promoting a change of style in the money markets, concentrating on making profits from interest rate movements and volatility and worrying less about the erosion of Bank protection.

The main rivals can still make money in the markets, and Union should be able to once morale is restored. The shares closed 13p up at 53p and have further to go to realise their recovery potential.