FCA Could Fine Homeserve plc £34.5m

The shares of Homeserve (LSE: HSV) dropped 4p to 279p during early trade this morning after the Financial Conduct Authority issued a draft penalty of £34.5m to the household insurance and repairs group.

Homeserve, which covers about 2 million customers in the UK, said it would now “engage in discussions with the FCA to finalise” the draft notice from the regulator.

The fine relates to an investigation into sales, marketing, controls, governance and complaint handling that commenced during 2011 and had initially resulted in the suspension of all telephone sales calls at Homeserve.

Homeserve confirmed the stated £34.5m penalty included a 30% discount based on the FCA’s early-settlement arrangement.

The FTSE 250 business also admitted it would have to “prudently” increase the provision already carried on its balance sheet for the penalty. Interim results from November showed just £4m had been set aside for the fine.

The proposed £34.5m penalty is equivalent to 10p per Homeserve share and compares to an adjusted pre-tax profit of £105m recorded last year.

Prior to today, City experts were expecting Homeserve’s upcoming annual results to show earnings at 17.7p per share and a dividend of 11.3p per share.

Following this morning’s price movement, Homeserve’s shares may therefore trade on a P/E of 16 and yield a possible 4%.

Of course, whether those ratings, the FCA's proposed fine as well as the wider prospects for the home insurance industry all combine to make Homeserve a 'buy' or a 'sell' right now is something only you can decide.

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> Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares In Homeserve.