Stock exchange: Announcement precipitates 23% price drop
Redde – the accident management group that owns two alternative business structures – saw nearly a quarter of its value wiped out on Friday after losing a major contract.
The company announced on Friday lunchtime that it had failed to secure the renewal of a hire and repair contract with a large insurer, after which its share price dive 23% to 105p.
The existing contract runs through into the next financial year and Redde said there would be no impact on the current financial year, ending 30 June 2019.
But for the next year, there will be a net reduction in sales of around £112m – representing 18% of forecast sales for those 12 months – and a £4.7m hit to operating profits, some 8.7% of what Redde expects to record.
This was after taking into account other contract wins and the effect of “mitigating actions”.
However, Redde said the effect on working capital in the 2019/20 financial year was “anticipated to be positive”.
The company’s 2017/18 annual results showed an 11.6% increase in turnover to £527m [1], with adjusted profit before tax up 15% to £46m.
In a statement to the stock exchange, Redde said: “After 10 years of partnership, the board is obviously disappointed not to have secured the renewal of this contract.
“However, as announced in the interim results on 27 February 2019, the pipeline of new business is nevertheless encouraging with a number of live prospects.”
Chief executive Martin Ward added: “We will concentrate our efforts on continuing to support our existing partners as well as winning new business to mitigate the effect on earnings in the next financial year.”
Redde’s recent half-year results [2] revealed a 7.6% increase in profit before tax to £23.6m, against a turnover up 15% at £291m.
Sales growth principally reflected a 15% growth in the number of credit hires together with a 7.7% increase in the total number of repairs undertaken.
Redde owns NewLaw Solicitors and Principia Law, and the former also has five ABS joint ventures, from which profits increased by nearly 150% to £2m.