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FSA probe casts its shadow over CPP

RESULTS: An ongoing FSA probe into life assistance company, CPP, remains a huge source of uncertainty – leaving few reasons to hold the shares
March 27, 2012

Adjust for a £14.8m provision associated with the FSA's investigation into life assistance company, CPP – which provides credit card identity protection and mobile phone insurance – and group pre-tax profit was roughly flat last year at £32.4m. But that ongoing probe remains a source of huge uncertainty for the group, leaving the shares looking vulnerable.

IC TIP: Sell at 74p

Chief executive, Paul Stobart, who joined the group October, admits that, until the FSA makes a determination on the issues involved – relating to failings in CPP's sales processes and the design of its card protection product – the group will be unable to fully assess the likely impact. That lack of clarity is understandable given that all customers dating back to 2005 will be reviewed, with those affected offered redress and with any automatic renewal procedures being stopped. With the implications of that probe still unclear, the board also decided to axe the final dividend entirely. Given that backdrop, the group's plans to expand into such potentially promising emerging markets as Brazil is unlikely to grab much attention.

JP Morgan Cazenove has slashed its adjusted EPS estimate for end-2012 by 17 per cent to 13.59p.

CPP (CPP)

ORD PRICE:74pMARKET VALUE:£127m
TOUCH:74-75p12-MONTH HIGH:281pLOW: 66p
DIVIDEND YIELD:3.3%PE RATIO:7
NET ASSET VALUE:16p†NET CASH:£11.9m

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200722516.8**
200825916.4**
200929224.811.2nil
201032639.816.37.5
201134628.310.62.42**
% change+6-29-35-68

†Includes intangible assets of £39m, or 23p per share

*Prior to flotation

**Half-year dividend only