Homeserve Plc (HSV) fell the most ever after analysts predicted earnings will plummet as the emergency-repair provider shrinks its U.K. business, which is under investigation for inappropriate sales practices.
The shares declined 29 percent to 160.9 pence in London, the lowest price since 2005 and the worst performance today on the FTSE All-Share Index. (ASX) The stock has dropped 68 percent in 12 months.
Homeserve customer numbers may fall as much as 18 percent to 2.2 million in the U.K. in the year ending March 31, the Walsall, England-based company said today. Analysts at Barclays Capital, UBS AG, JPMorgan, Jefferies Group Inc., RBC Capital Markets and Peel Hunt LLP all cut their 2014 earnings estimates by at least 20 percent.
The Financial Services Authority began a formal inquiry into Homeserve’s former sales practices more than six months after the company suspended telephone sales. The stoppage arose from concern about the way some “complete-cover” policies were sold as an upgrade to existing customers, the company said in a statement today.
“There remains considerable uncertainty surrounding the outlook for the U.K. operations,” Victoria Prior, an analyst at JPMorgan Chase & Co., said in a note to clients. That “is likely to weigh further on the shares in the short term.”
Homeserve said today it will focus on water utilities, manufacturer warranties of installed appliances and financial services companies to try to improve customer retention. The number of U.K. policies declined 12 percent last year. The services provider will also boost international business, Chief Executive Officer Richard Harpin said in a telephone interview.
“It won’t be long before we have more customers internationally than we have in the U.K.,” Harpin said. “A measure of the potential is that we have less than 5 percent market penetration compared with 12 percent in the U.K.”
Homeserve’s international customer numbers rose 14 percent to 2.2 million at March 31.
The FSA investigation into “historic” practices had been anticipated to some extent by investors, Prior said, as Homeserve and the regulator had been in informal talks since October. A formal probe would take up more management time and could affect Homeserve’s reputation with potential partners, said Jane Sparrow, an analyst at Barclays Capital in London, in a note to clients.
Homeserve said in October when it announced it had suspended telephone sales that it had been in regular touch with the regulator about issues uncovered in an internal review. The difficulties reinforced the company’s view that it should focus on high-quality customers who were likely to renew contracts, Harpin said today.
Net income for the year ended March 31 surged 49 percent to 114.3 million pounds ($180.6 million), or 34.6 pence a share, from 76.9 million pounds, or 23.3 pence, a year earlier. Revenue increased 14 percent to 534.7 million pounds.
Profit was higher than the median estimate of 62.1 million pounds of five analysts surveyed by Bloomberg, after a bigger-than-expected increase in the value of its 49 percent stake in Domeo, its venture with Veolia Environnement SA, that it revalued after buying Veolia’s 51 percent stake in December.
Homeserve said it hired Johnathan Ford from NWF Group Plc as chief financial officer. He will take the position on Oct. 1, Homeserve said in a separate statement.
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