The AIM-quoted company’s car insurance arm, ingenie, has continued to suffer from changes to the Ogden rate, which sets the amount of compensation to be paid to people affected by accidents.
Compounding that has been a sharp drop in motor insurance premiums over the past year or so amid intense competition in the sector.
ingenie’s revenues halved to £7.7mln in 2018, down from £14.4mln a year earlier, while revenue in Watchstone's healthcare services business was broadly flat at £30.0mln (2017: £30.5mln). Group turnover dropped to £37.7mln from £44.9mln.
The annual loss after tax is expected to be in line with the £2.6mln loss it recorded in 2017 as lower costs offset the drop-off in revenue.
Watchstone is still embroiled in a legal battle with Slater & Gordon over the sale of its Quindell professional services division, which the Aussie law firm bought for £637mln in 2015 but is now seeking to get its money back.
Last August, the company said it had set aside £4.3mln to fund its defence, although it added today that it “continues to bolster the provision for legal costs”.
A trial is expected to begin in October and Watchstone said it is looking to deal with the legacy issues “as efficiently as possible”.
City broker slashes forecasts, target price
“It has taken longer for the operational changes made to the businesses to take effect than expected,” said a note from City broker Peel Hunt.
“We therefore revise down our trading loss before tax (LBT) forecasts for FY18/19/20 from £4.7mln/ £3.2mln/ £1.9mln to £5.3mln/£3.8mln/ £2.5mln.”
Analysts added: “We move our target price to 120p (from 140p) to reflect updated forecasts and expect good progress in 2019 towards value crystallisation.”
Watchstone shares fell 5% to 90.4p in late-morning trading on Thursday.