Companies: ACE   

Credit car-hire specialist Accident Exchange has warned of a possible equity financing need after disputes delayed cash collections.

Shares in the West Midlands-based company plunged nearly 45 per cent this morning, wiping some £55 million off its London Stock Exchange Full List value, after Steve Evans, chief executive and 40 per cent-plus shareholder, issued a profits warning and said 'an equity fund raising' was among 'options under consideration' by the board.

The company, which warned in February that growth in its third quarter had been 'below board expectations', now says it expects pre-tax profits for the year to this month to come out at £18 million, £1.7 million up on the previous year but significantly below earlier expectations.

A former growth stock, Accident Exchange rents cars to 'no fault' victims of motor accidents and collects payments for this from the insurers of the 'at fault' defendants. In the past, insurers had objected to the hire rates agreed between the credit hire companies and the vehicle suppliers, but a few years ago, peace was understood to have been brokered, after a new hire scale was agreed with the Association of British Insurers.

However, Evans says solicitors for some of the defendants recently raised 'technical arguments' to 'reopen' the issue of whether Accident Exchange's credit hire terms were on older agreements from 2004 and 2005, and, after all, enforceable. The board has received leading counsel's opinion that the terms are enforceable and argues the Consumer Credit Act of 2006 further strengthens its hand.

Even so, the company has had to face collection delays and to accept discounts in the case of bulk settlements. As of 5 April, Accident Exchange was using about 60 per cent of a £120 million banking facility for working capital.

Chairman David Galloway insists 'the board continues to have confidence that Accident Exchange has substantial potential in a market which still has excellent potential for growth'. Meanwhile, the company says investors wanting to hear more details about prospects and the possible equity issue will now have to wait until the full year results come out 'at the end of June'.

Accident Exchange shares, which surged from 31.5p in mid-2004 to 500p early last year, now trade at 100p, having dipped below 90p this morning. This values the company at £71 million.