Broker snap: Charles Stanley puts HomeServe rating under review

22nd May 2012 10:00

Charles Stanley has put its rating for emergency home repairs group HomeServe under review after the firm revealed that the Financial Services Authority (FSA) was investigating 'certain historic issues'.The broker says that the pre-tax profit of £126m for the year ended March 31st was in line with its estimate but the "real news" was the FSA probe. The company also said that its expected renewals revenue in the ending 2014 will reduce as a result of lower customer numbers."On speaking to the company it will refocus its UK sales on its 'value customers', thus customer numbers are expected to decline from 2.2-2.4m from 2.7m," said analyst Andy Smith.He says that consensus numbers for the 2014 (ending) fiscal year will have to come down from £121m to somewhere around £90m - the UK currently accounts for around 84% of group operating profits. HomeServe is still happy with the current consensus pre-tax profit forecast of £111m for the year ending 2013, which is a 12% year-on-year decline."While the shares have decreased by 53% since the suspension of UK sales activities on Oct 31st, they will now remain under pressure. Currently trades on a rating of eight times [earnings]. Our hold recommendation is under review," Smith said.The group's share price had sunk on Tuesday morning on the news, trading 23.26% lower at 174.5p by 10:00.BC