HomeServe suspends marketing over mis-selling fears -UPDATE

31st Oct 2011 07:47

HomeServe, the company which provides emergency repair services, is to suspend its telesales operation after an independent review.The audit firm Deloitte found "processes that did not meet the company's required standards."Many observers will interpret this as so called mis-selling, when customers are either not told the full truth about the service they buy or are put under undue pressure during the sales process.HomeServe now says it has started "an immediate re-training programme for its telephone sales staff and is developing new scripts."No outbound calls will take place until the re-training programme has completed. This will worry investors although Homeserve says it is on track to achieve consensus profits in its full year which ends in March 2012The firm also says its regulator, the FSA, has been informed of the measures, although that does not mean HomeServe will definitely avoid a fine.Richard Harpin, Chief Executive, said: "We are determined to ensure customers receive the highest standards of service and we have therefore taken swift action to address the issues identified by our review. We have commenced a programme to re-train staff. We will resume marketing once we are confident that our sales processes meet the standards that we and our customers expect". Writing to clients this afternoon analysts at Citi are explaining that, "At present this is an internal issue with the suspension of outbound sales a sensible move, but it remains to be seen whether the FSA will become involved. Short term, we see this more of reputational than financial impact given the UK's retention rate is running at c.82.5% and the slowing of new customer recruitment is likely to be neutral on earnings since the company typically makes a small loss on the customer in their first year," nonetheless, they add that, "this combined with a slower ramping in the US opportunity and its premium valuation causes us to retain our Sell rating. Our new DCF derived target price is 400p (430p)."BS