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IVA firm’s shares tumble

Debt Free Direct’s shares took a sharp downturn last week after it admitted profits for 2007 would be down due to deteriorating advertising performance.

This follows the company admitting to Mortgage Strategy that it has shopped 28 individual voluntary arr-angement firms to the Advertising Standards Authority for false advertising claims. Mortgage Strategy also revealed that DFD is itself under investigation by the ASA.

On March 6 in a trading statement, the company revealed its 2007 profits are likely to be some 15% lower than anticipated. DFD originally predicted growth of £8m which was subsequently adjusted to £11m, but has now revised this to £9.7m.

This led to a fall in the firm’s share price from over 500p per share to 309p. At the time of going to press the share price stood at 311p.

DFD says higher advertising costs, lower call volumes and creditor concerns led to the revision. It notes the deterioration in IVA advertising has continued but does not know if this is due to increased competitor advertising or lower confidence in IVAs.

In a trading statement DFD states: “We have been encouraged by the ASA’s response to the highlighting of misleading and untruthful IVA adverts. In the longer term, we anticipate the IVA advertising market will not be as competitive as it is”

DFD plans to increase business by entering into a two-year agreement with an unnamed money advice organisation for the generation of leads. DFD says this business is generating around 10% of its volumes.

The statement adds: “While we may be impacted by higher advertising costs and lower response rates, the beneficial impact of the new lead source and the increase in our non-IVA revenues means that advertising cost per IVA can increase significantly without affecting our profitability. Our confidence in achieving market expectations for 2008 remains unchanged.”

Last week, IVA provider ClearDebt posted losses of almost £500,000. Chief executive David Mond called this “a testing period for the IVA industry, with creditors pressing providers to return a higher proportion of debtor payments”.

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