Blow for CPP as customer pulls the plug on contract

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SHARES in credit card insurer CPP Group slumped almost 12 per cent after one of its biggest customers decided not to renew a contract, as a probe by the City watchdog into its sales tactics drags on.

The York-based group said Barclaycard will not extend its contract once it expires at the end of March. Shares in CPP fell 13.75p to close at 105p.

CPP works with customers of firms such as banks to insure against loss or theft of mobile phones, wallets and credit cards.

CPP said it is still unclear when the Financial Services Authority will complete its investigation into alleged mis-selling of identity and credit card protection products, first announced in March 2011.

It said in a statement: “The FSA investigation into certain issues surrounding the sale of the group’s card protection and identity protection products in the UK, and the suspension of identity protection sales in the group’s UK voice channels, both of which were announced in March 2011, are continuing to have a material impact on the group’s ability to sell its full range of products in the UK.

“The duration and outcome of the FSA investigation continues to be uncertain.”

Barclaycard initially suspended sales through the ‘call to confirm’ channel in April 2011, but CPP said it continued to offer card protection products to customers who hold the ID protection product. Barclaycard has also continued to offer ID and card protection products to customers through its own sales channels, added CPP.

Losing the contract means CPP will stop selling ID and card protection products to Barclaycard customers within three to six months, although it will continue renewals for existing customers for the next three years.

CPP said new Barclaycard sales are less than one per cent of revenues in its 2012 financial year, but analysts estimate Barclaycard is worth around 10 per cent of the group’s revenues.

Lower new sales will have minimal impact on underlying operating profits in 2012 and 2013, CPP said, as it will make savings on “commissions and marketing costs”. However, lower renewal sales will hit overall revenues and profits after 2012.

CPP said: “Whilst disappointed at Barclaycard’s decision, the board remains positive about the group’s prospects in the UK as the new business pipeline continues to build, the consumer appeal of the group’s products remains strong, and relationships with business partners remain good.

“Meanwhile, the group’s long-term international prospects continue to develop well in markets where the large bankable populations offer significant potential for further market penetration.”

Analysts at JP Morgan Cazenove said while the initial impact will be small, Barclaycard is one of the group’s top five customers. The brokerage estimates these top five customers account for up to 60 per cent of CPP’s revenues.

CPP has more than 200 customers or business partners.

“This is clearly a further blow for the group with the ongoing FSA investigation continuing to impact the group’s ability to grow the UK business,” said JP Morgan analysts.

“While there is little impact on near-term group estimates from the Barclaycard announcement (as less than one per cent of new sales were from Barclaycard), it will likely have a bigger impact post 2012 as one of the group’s largest customers.

“With no clarity on when we may get a conclusion on the FSA’s findings and business partners reluctant to make decisions ahead of that, the risk to estimates and the share price remains on the downside in the short-term, in our view.”

Citigroup analysts expect an update on the FSA investigation in the next six weeks.

They said assuming Barclaycard accounts for 10 to 12 per cent of the group’s revenues, this could mean four to five per cent wiped from CPP’s earnings per share.

The FSA has never confirmed the investigation or commented on it.

A Barclaycard spokesman said: “As part of our usual business processes we conduct regular reviews of our relationships with third party suppliers.

“Following a recent review, we have decided to offer our customers new products from an alternative provider.

“However, CPP will continue to remain an important partner for Barclaycard and we will continue to work with them for the benefit of existing customers with CPP products.”

The FSA probe arose when the regulator asked for recordings of CPP’s sales calls, as part of a routine investigation. CPP has since re-launched its ID product without an insurance element.

A decade of acquisitions

CPP was incorporated as Card Protection Plan in 1980 by entrepreneur Hamish Ogston.

It launched its card protection service in the UK the following year.

During the 1990s it expanded into Germany, Spain and Ireland.

In 2000, CPP opened its York headquarters.

During the next decade the group embarked on a series of acquisitions, including buying homecare and mobile phone insurance products.

The company floated on the London Stock Exchange in March 2010.

In October chief executive Eric Woolley stepped down to be replaced by former Sage Northern Europe chief executive Paul Stobart.