Homeserve Plc (HSV), a U.K.-based emergency-repair service provider, was the worst performer in the FTSE All-Share Index (ASX) after saying the Financial Services Authority began a formal inquiry into former sales practices.
Analysts at Barclays Plc, UBS AG, JPMorgan Chase & Co. and Jefferies Group Inc. said full-year earnings at the Walsall, England-based company may drop by 20 percent or more in the year to March 31, 2014, because of cuts in its U.K. business.
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 company said in a statement today. It will focus on water utilities, manufacturer warranties of installed appliances and financial services companies to try to improve customer retention. U.K. customers declined 12 percent last year.
“There remains considerable uncertainty surrounding the outlook for the U.K. operations,” Victoria Prior, an analyst at JPMorgan, said in a note to clients. That “is likely to weigh further on the shares in the short term.”
The shares fell as much as 35 percent to 147 pence in London trading, the lowest price since December 2004 and were down 23 percent at 9:33 a.m. That was the biggest intraday drop since Oct. 31 and extended the decline over the past year to 66 percent.
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.
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’s international customer numbers rose 14 percent to 2.2 million at March 31.
“It won’t be long before we have more customers internationally than we have in the U.K.,” Chief Executive Officer Richard Harpin said in a telephone interview. “A measure of the potential is that we have less than 5 percent market penetration compared with 12 percent in the U.K.”
The problems it had in the past with sales had reinforced to the company that it should focus on high-quality customers who were likely to renew contracts, Harpin said.
Homeserve said it hired Johnathan Ford from NWF Group Plc as chief financial officer. He will take up his position on Oct. 1, Homeserve said in a separate statement.
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