Universal Salvage left for scrap

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The FTSE 350 yesterday witnessed the spectacular fall from grace of the scrap car dealer Universal Salvage, whose shares tumbled 54 per cent following a profit warning and news that Direct Line Insurance was cancelling its contract with the company.

Universal Salvage, which buys write-offs from insurance companies, said trading during the last six weeks had been below management expectations and the first-quarter performance overall was below the level of the same period last year. Margins, which usually strengthen in the first two months of the financial year, were merely flat. Underlying profits for the year ended 27 April would be only £7.2m.

Direct Line had also "unexpectedly" given Universal Salvage notice that it would terminate its contract at the end of June, after a rival scrap car company offered "significantly higher" prices for its vehicles. The insurer currently provides Universal Salvage with about 50,000 cars annually.

Martin Hynes, Universal Salvage's chief executive, said the company had bounced back from a similar contract loss last year. "We are naturally disappointed by this development, but we remain confident of replacing the business over the next six to nine months as we successfully achieved last year following the termination of the Norwich Union contract," he said.

Universal Salvage's shares fell by 253p to 215p, valuing the company at just £60m and making ejection from the FTSE 350 a near certainty. The stock hit a high of 508.5p last August and has traded for most of the last year above 460p. Investors had warmed to Universal Salvage in the expectation that tighter controls on damaged cars would encourage more insurers to outsource the vehicle salvage process.