Accident Exchange driven lower by profits warning in UK

Car rental firm Accident Exchange saw its shares tumble today after slower than expected growth and legal disputes forced the firm into its second profits warning this year.

The West Midlands firm, based in Coleshill, said pre-tax profits would be around £18m(€26.5m) – £5m (€7.5m) lower than the £23m (€33.8m) expected for the year to April 30 – prompting its shares to fall by more than 40%.

The company, which rents cars and pursues claims for drivers in accidents who are not at fault, said its revenues growth in the last three months of the year was below expectations despite being up 14% on the previous quarter.

It added that technical legal challenges to older rental agreements made in 2004 and 2005 had slowed down the collection of payments on claims which the company was pursuing.

While Accident Exchange said it had legal advice that its older agreements were enforceable, it added that the challenge from solicitors acting for ’defendant’ drivers had caused some of the insurers of drivers facing claims to slow down payments because of the potential legal uncertainty.

The company said the disputes had increased debtor days from 141 days at October 31 last year to 175 days as of March 31.

The payment slow down means the firm is currently using around 60% of its £20m (€29m) banking facilities and it is looking at options for a financial restructuring, including an equity fundraising.

Despite the warning, chairman David Galloway said the company had “substantial potential in a market which still has excellent prospects for growth”.

But broker Shore Capital downgraded Accident Exchange to sell following the warning, highlighting that more than a third of the company’s claims were outstanding.

Analyst Phil Carroll said: “We believe that it is quite staggering that around 36% of claims are outstanding and it gives a strong indication that the company’s collection process is not as efficient as it could be. There could be more bad news to come.”

Accident Exchange made underlying pre-tax profits of £16.3m (€24m) on sales of £53.5m (€78.5m) for the year to April 30 2006.