Newspaper article The Evening Standard (London, England)

Homeserve's Cockiness Strikes Me as a Bit Chilling

Newspaper article The Evening Standard (London, England)

Homeserve's Cockiness Strikes Me as a Bit Chilling

Article excerpt

Byline: Jim Armitage

TIS the season of burst boilers. So, as the Christmas tree wilts and the chill sets in for January, the engineers at Homeserve have braced themselves for their busiest time of the year.

It should be a comfort for them -- or at least those owning shares in the business -- that, as the thermometer falls, Homeserve's share price just keeps on rising.

This strikes me as slightly odd.

Why? Because the company, which pledges to repair your boiler in return for regular premium payments, admitted in May that it was being investigated by the Financial Services Authority over the way its sales force was operating.

It wasn't a particularly new scandal -- the business had already 'fessed up to some naughty sales techniques the year before. In fact, it admitted to such bad practice that it suspended its sales operation for several months. Somewhat mysteriously, UK head Jon Florsheim quit with a [pounds sterling]632,000 pay-off a few months earlier.

But when Homeserve admitted to having had a knock at the door from the FSA, the shares plunged almost 30% in a day to 160p.

That's no surprise -- the FSA could levy a huge fine on the company and demand many millions more in redress. Of course, I'm not prejudging what the FSA will say, but look at what it did with the CPP credit-card protection company's mis-selling case -- a [pounds sterling]10.5 million fine and other costs bringing the total north of [pounds sterling]30 million.

Homeserve last updated the market in November, saying the FSA probe is still a few months away from being complete. In the meantime, chief executive Richard Harpin has decided not to make any provisions for the fine or the costs of the investigation.

If I were a shareholder, this would trouble me. Doesn't it feel a bit like flying blind? But Homeserve's investors, including Neil Woodford's Invesco, which has a 20% stake, must be an optimistic bunch. …

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