Woodchester should cut links with Lyonnais

ONCE upon a time, Woodchester Investments dominated the news, with its aggressive takeover spree. Today, it has settled down to a more regular routine of making the odd acquisition, and publishing interim and final results. Its parent, the financially troubled Credit Lyonnais, which owns 53 per cent of Woodchester, in contrast, has been beset with controversies. Now is the time to cut that umbilical cord.

Woodchester's more relaxed status does not mean that it has been sitting on its laurels. Indeed, it has been quietly beavering away. That will become apparent when it publishes its interim results on Thursday.

The market is looking for a 25 per cent growth in operating profit, and a 20 per cent increase at the pre tax level, for the full year. It is doing better than that.

Its operations in Ireland, Britain, Denmark and Portugal are all performing well. Many financial groups in the domestic market have already announced good results for the first half. ACCBank, for example, pushed its pre tax profit up by 17 per cent to £6.7 million, on the back of growing demand for loans and a buoyant housing market. ICC Bank recorded a much more modest increase, of 5.7 per cent to £5.85 million, but that was distorted by provisions, which, if excluded, indicated an underlying growth rate of 14.5 per cent. AIB pushed up its interim profits by 13.6 per cent to £201 million, well ahead of brokers' expectations. And Ulster Bank increased its profits by 16 per cent to £66 million sterling.

Woodchester is not directly comparable with the four companies, but its results indicate a healthy (some would argue unhealthy given the strong rise in money supply, due to the steaming housing market) demand for credit. Also, Woodchester services sectors are growing particularly fast. It has, for example, a strong presence in the motor finance market which has witnessed a record 100,000 cars sales so far this year. Woodchester is also finished with its restructuring programme which should continue to throw up some benefits.

Conflicting signals continue to come from the British market. However, Woodchester is strong in the equipment leasing market and that has been performing strongly. The British business will also be helped by Anglo, the small equipment lessor, which was acquired last year. And Lookers, the Manchester based car firm in which Woodchester has a 29.1 per cent stake, acquired Charles Hurst, Northern Ireland's largest motor dealer, earlier this year. That provides Lookers with a much wider geographical base which should benefit Woodchester.

The Danish market, where it is involved in car finance and agriculture finance, has been growing strongly. And the Portuguese car leasing market has been positive.

Woodchester has already reported growth of over 20 per cent in the first quarter. New business volumes amounted to almost £300 million. Adjusting that for Anglo, there was an underlying growth of some 30 per cent. There is every reason to believe that that sort of growth has been at least maintained.

Woodchester remains in a very strong financial position, with surplus capital. This is reflected in tier one capital ratio which stands at 11 per cent. It could still drop this to 6 per cent and operate with comfort, so it has plenty of financial scope to expand by acquisitions.

Woodchester has now reached a go it alone stage. But it could grow in a more meaningful way through an alliance with a more financially stable partner.

Woodchester's association with Credit Lyonnais did provide it with fodder to grow rapidly with acquisitions in the past. That appears to be over. It is no longer dependent on Credit Lyonnais. And Woodchester is not helped with the French bank limping from one financial crisis to another. It has been bailed out by its owner, the French government, in 1994 and again in 1995.

Credit Lyonnais now needs another patch up job and reliable sources say this will be announced on September 26th when the interim results are released. While a further injection would erase some of the uncertainties surrounding Credit Lyonnais's future, the French government would have to inject at least to billion francs (£1.2 billion) to allay the persistent fears.

Credit Lyonnais has consistently denied that its stake in Woodchester is for sale. This must now be the time for the Woodchester board (excluding the directors representing the French bank) to take the initiative and encourage Credit Lyonnais to place the shares, and to buy back some of the holding itself. That would remove the continued uncertainties over the 3 per cent shareholding block, which at times, seems to hang like an albatross around Woodchester's neck.