Allied's $220 million write-down may understate recoverable loans

The brokerage points out that the rules required under International Financial Reporting Standards may significantly understate what value Allied could extract from its new loan assets in gross loan realisations.

"What is clear, and what was already known, is that the loan realisation process will be a long and potentially litigious one," it said. "The early resolve and conviction Allied has shown towards pursuing recoveries is, however, very encouraging."

Shares of Allied have tumbled to a record low this month, dropping 2.5% to 7 cents today. McDouall Stuart has a 'buy' recommendation on the stock, noting the decline in the price since the finance company posted a $15.7 million first-half loss.

One of the major advantages of Allied's proposal to buy the ailing finance company's book four months ago "was that its post-completion balance sheet strength (relative to Hanover/United) would give it options to negotiate with higher-ranked mortgage holders of distressed assets to extract value," the brokerage said. "This remains the case."