Questor share tip: Homeserve still a sell But this all came to an abrupt halt when it suspended all of its telesales and marketing activities in October 2011 following an internal review by accounting firm Deloitte that discovered sales practices that the company said at the time "did not meet the company's high standards." The regulator's investigation is not into the products that Homeserve was offering, but what was said by staff in Homeserve call centres in order to seal the deal. In practice, this meant that customers may have been sold policies such as "electrical wiring" insurance that covered just the wires - but not the lamps, heaters or other appliances that are connected to the wires, items that might have already been covered by their overall domestic insurance. Homeowners were also tempted by cover on their water pipes when they are often covered against supply-pipe leaks under the "accidental damage" clause of their buildings insurance, something that sales operatives are thought to have failed to disclose during the marketing spiel. Homeserve has now overhauled its practices and the regulator has allowed the company to make calls to existing customers but, crucially, outbound or "cold calls" are still off limits. So the company now finds itself entering a crucial period with one hand tied behind its back. The risk of this UK investigation to the business model is clear. Homeserve group revenue was split 56pc in the UK, 18pc in the US and 26pc in France and Spain at the year ended March 2013. The profitability was even more lopsided, with 70pc from the UK, 8pc in the US and 22pc in France and Spain. The company said it expects to end the year to March 2014 with 1.9m UK customers, down from 2.7m at March 2012. Broker forecasts expect that would see the UK operation shrink further to 50pc, and 60pc, of the group revenue and profits respectively. Homeserve said it was confident the retention rate of UK customers would remain at 80pc. However, simple maths illustrates the problem: retention of 80pc of 1.9m customers would see the loss of another 380,000 customers to 1.52m UK customers in the year ended March 2015. Homeserve said it expects to win 200,000 gross new customers in the current year, however this needs to double just to stand still. Then there is the unknown - the size of the fine Homeserve faces. It has a provision for £6m on the balance sheet, but the FCA has been getting tough on mis-selling recently and CPP, the card insurance company, was hit with a £10.5m fine for its misdemeanour. Homeserve has some bright spots such as growth in the US and a stable business in France but, as previously illustrated, these aren't big enough to offset any hole the UK business will leave. Looking for bargains where others fear to tread may be entertaining, but investors have to know when to walk on by to protect capital as well. There is way too much risk in this situation so the shares remain a sell.