Barclaycard decision knocks shares at CPP

CREDIT card insurer CPP was one of the biggest losers on the FTSE 250 yesterday after the Yorkshire firm said profits would be hit by Barclaycard’s decision to halt sales of some of its products after the City regulator launched an investigation.

Shares in the York-based firm tumbled 14 per cent to close at 129p after Barclaycard said it would stop sales of CPP’s “call to confirm” channel while it carries out a review.

Last month CPP said the Financial Services Authority was investigating “alleged failings” in its sales calls for its credit card and identity theft products.

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Sales to Barclaycard customers in the call to confirm channel are currently less than two per cent of group revenue, CPP said, but reduced sales in 2011 and 2012 will knock profitability.

Last night Eric Woolley, chief executive, told the Yorkshire Post he did not know when Barclaycard would complete its review.

“Barclaycard would not tell us everything they were thinking and needed to do and we don’t second-guess them.”

CPP, which floated on the London Stock Exchange a year ago, has vowed to fight the FSA inquiry and has suspended sales of its ID theft products but insists it has not misled customers.

It sells many of its products through tie-ups with firms such as Royal Bank of Scotland. Analysts have warned the probe could scare off its business partners but yesterday it said it had received messages of support from some of its 200 business partners and that it “continues to work” with the regulator.

“They (clients) know us to be very ethical and a very fair business in the area of selling appropriate products,” Mr Woolley said.

CPP’s own response to the investigation has been sent to the FSA, he added.

In a statement the firm said: “The impact on underlying operating profit in 2011 and 2012 will be immaterial although reduced sales in 2011 and 2012 will have an adverse impact on the profitability beyond 2012 as the renewals revenues (upon which CPP pays a smaller commission to its business partners) will also be lower.”

It added that no product sales suspended by business partners, other than Barclaycard, have had a material impact on the group.

Analysts took a sober view of CPP’s prospects after the Barclaycard decision.

Henry Carver, at Peel Hunt, said: “The risks are now clearly higher, we fear that if one business partner decides to withdraw from any of CPP’s services then several others could follow.

“With the FSA discussions not yet resolved either, the shares are likely to remain weak.”

Alex Hugh, at UBS, said it “further highlights the concerns on business partner reactions and the uncertainties remain”.

JP Morgan Cazenove said: “In aggregate, Barclaycard’s call-to-confirm channel... is not material to near-term estimates on its own.

“However, the call to confirm/card activation channels are a significant contributor to CPP’s growth and therefore there could potentially be an impact on anticipated profits beyond 2012, as the policies that would then be renewing are absent (CPP pays less commission to business partners after the first two to three years and therefore policies become more profitable for the group).”

CPP, which also offers protection against the theft or loss of wallets, mobile phones and keys, does not break down individual numbers of its different policy types, but analysts believe it has about a million identity theft products out of a total 11.2m policies in the UK.

A Barclaycard spokesman said: “We regularly review our processes including the way we issue replacement cards to our cardholders.

“We’re investigating new ways of establishing safe receipt, where that’s appropriate, whilst giving our customers the opportunity to learn more about our wide range of products and some of the newer capabilities of their Barclaycard; such as contactless payments, our Freedom rewards programme, online servicing and paperless statements.”

The review will “take as long as required to ensure the best outcome for our customers”, he added.

CPP, founded 30 years ago by Hamish Ogston, operates in 15 countries including Spain, Italy and the US. It floated a year ago to raise £150m.

Entrepreneur Mr Ogston still holds 57 per cent of the stock in CPP and management believe he will remain a long-term shareholder.

Focus on new markets

CPP’s second piece of bad news comes little more than five weeks after it reported strong profits and sales growth in its first year as a listed company.

It announced plans to expand into Brazil and said it was confident of another year of growth after recording a 31 per cent increase in underlying pre-tax profits to £32.3m in 2010.

The group wants developing markets to contribute more to its growth. Fast-growing economies, such as China and India, offer CPP a rich source of increasingly affluent “bankable” consumers looking to protect their possessions. The group takes between three and five years to build a profitable business in each new country.