Broker snap: Numis cuts HomeServe to 'hold' after FCA fine

13th Jan 2014 09:20

Numis Securities has downgraded its rating for home emergency repairs group HomeServe from 'add' to 'hold' after the company received a fine by the Financial Conduct Authority (FCA) over alleged sales and marketing mis-selling. Homeserve said the £34.5m penalty - assuming an early settlement discount of 30% - is for issues mainly linked to historic sales and marketing, controls and governance and complaints handling. The amount is significantly higher than the company's initial provision of £6m, so the company has put aside a further £30m.Numis has lowered its price target for the shares from 295p to 286p, saying that the fine is "much larger than anticipated and is worth 9p off the price of the stock on a purely cash out basis"."We regard the timing of the FCA notice as unfortunate as it comes in the group's most important renewal period. With likely sensationalist headlines in the press at this time we are concerned as to the impact on renewal levels which had moved up to 81% in H1 (v's 78% in the comparable period and 79% for 2012/3)," said analysts Mike Murphy and Steven Woolf."Following the recent strong performance we move our recommendation to 'hold' from 'add'," they said.The stock, up 3.87% at 293.44p in morning trade on Monday, has now risen by over 13% over the past month.BC