Bottom Line: A Policy to avoid

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'FOR all its merits, Policy Portfolio is not a company that should have a stock market listing,' said Bottom Line last July. Sadly for its shareholders, the company has done little to prove us wrong.

Policy Portfolio was already underperforming the FTA All Share Index by almost 40 per cent when yesterday it warned of disappointing sales of second-hand life insurance savings policies. The cost of additional staff taken on to handle the expected growth in this niche market-making business will mean second-half profits will not match the pounds 429,000 it made in the first half.

Policy Portfolio shares fell another 10p to 88p, a third down from the 130p placing price.

With two months of its financial year still to come, Policy Portfolio expects sales to be 30 per cent up on last year's total of pounds 7.9m. This sounds good, but is less than hoped for in a business where margins have shrunk rapidly.

Policy Portfolio said its gross margin would be 'higher than originally anticipated' at around 15 per cent. This is still a fall on last year.

Besides the impact of increased competition, margins are being squeezed by pressure on the life insurers to pay better surrender values.

The suspicion remains that the market remains too narrow and too uncertain to support a public company, even a small one.

The same fears apply to the recently floated Securitised Endowment Contracts. Avoid.