Shares hit but CPP continues on global journey

CREDIT card protection firm CPP Group said its international expansion continues to go to plan despite tough economic conditions, but shares in the company dipped yesterday after posting strong gains in recent months.

The York-based company, which sells insurance products for credit cards, wallets and personal possessions, said it is trading in line with its expectations as it approaches the end of its first financial year as a listed company.

CPP, founded 30 years ago by entrepreneur Hamish Ogston, floated on the London Stock Exchange in March, raising 150m to fund expansion.

It now operates in 14 countries and is eyeing further expansion. Yesterday the group said it has contracted Deutsche Bank to sell its card protection product in Italy. It has also signed a contract for a retail pilot of card protection with Guangdong Development Bank in China.

That was on top of a contract with Guangdong Bank for the wholesale supply of card protection, and is CPP's second retail contract in China following a deal with Shenzhen Development Bank.

"CPP is a cash-generative, fast-growing business with a proven growth strategy in the UK and internationally, and I am pleased with the progress the business has made this year," said chief executive Eric Woolley.

Fast-growing economies, such as China and India, offer CPP a rich source of increasingly affluent "bankable" consumers looking to protect their possessions and credit cards. The group typically takes between three and five years to build a profitable business in each new country.

"We are excited by the growth opportunities available to us and are encouraged by the development of our recently launched markets, including China, India and Mexico," said Mr Woolley.

"We expect Turkey to record full-year profits for the first time since launch. CPP is well placed to keep developing attractive business opportunities with new and existing partners around the world.

"Looking forward, whilst economic conditions remain challenging our outlook for the future remains unchanged and we remain on track to deliver another year of strong growth in line with expectations."

Mr Woolley said potential new markets include Taiwan, Indonesia and Brazil. "I'm sure during the course of 2011 we will probably start in one of these countries," he added.

"We've got short to mid-term opportunities in Europe and the US. Emerging market opportunities are probably five years plus."

Shares in CPP shed 9.9p to close at 295.1p after the update prompted a number of broker downgrades, mainly on valuation grounds. They have risen about 25 per cent since floating at 235p.

"Good progress increases confidence in the company and justifies our price target increase to 310p," said brokerage Peel Hunt. However, the broker said it believes after a strong run, CPP shares are now fairly priced, and it cuts its recommendation to "hold" from "buy" until it sees further positive newsflow in the new year.

The group said new assistance income has continued in line with the growth trend it saw earlier this year. CPP said its annual renewal rate, which stood at 76.2 per cent in August, continues to reflect reduced rates in southern Europe, where economic instability means consumers are thinking twice before renewing its insurance products.

CPP added the renewal trend also reflects increasing renewal rates in its newer territories.

"The group continues to be strongly cash-generative, with low net debt, and there has been no change in our financial position," it said.

Markets that hold the key

International markets hold the key to CPP Group's long-term growth, as it taps into increasingly affluent growing economies.

The group now operates in 15 territories – 14 countries – after recently expanding into China. Fast-growing economies offer CPP a healthy supply of affluent consumers looking to protect possessions and credit cards.

The group takes between three and five years to build a profitable business in a new country. After launching in India in 2008, CPP has now started earning renewal sales there, an important step towards profitability.

In Mexico, CPP started selling to HSBC customers in 2009. CPP recently said Asia Pacific is showing year-on-year revenue growth.