Universal Salvage shrugs off contract loss

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The Independent Online

City Editor

Universal Salvage, the recently floated dealer in written-off motor cars, shrugged off the loss of business from AGF, the insurance company, to record a 9 per cent rise in trading profits in its first results since coming to the market in September.

The loss of the AGF contract was more than made up for by strong underlying growth in the number of vehicles Universal handled for existing clients and the addition of new clients. The company came to the market in the hope of improving its credibility with large insurance companies.

Universal buys wrecked cars from insurance companies for a proportion (between 8 and 25 per cent) of their value and then sells on at auction those that can be rescued and breaks up the others for spare parts. About 13 per cent of the UK's 500,000 crashed cars pass through the company's books.

Founded 27 years ago by chairman Clifford Bassett, the company has prospered in its unglamorous but profitable niche. Profits soared over the past five years from pounds 553,000 to pounds 3.38m, and the trend continued in the six months to October with profits up from pounds 2.0m to pounds 2.18m before the pounds 668,000 cost of coming to the market.

As forecast at the time of flotation, a 1.52p dividend was paid out of underlying earnings per share of 5.44p (4.94p). The shares added 2p to 217p, at which point they have added a third since trading started four months ago. The market has concentrated on the company's strong cash flow rather than arguably questionable earnings quality, which depends to a large extent on a small handful of insurance companies.