HomeServe PLC (LON: HSV)

HomeServe PLC is an FTSE 250 Index listed United Kingdom-based company. It is engaged in providing repair, home emergency and heating installation services. The Company operates in U.K., North America, Spain, France, and New Markets. They also design a range of water, heating and electrical related home assistance products and offers connected home solutions. The Company has operating centres in the United Kingdom, the United States and continental Europe.

On 16 November 2021, HSV will release the H1FY22 results. 

Recent trend of dividend payments

(Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by HSV from FY17 to FY21. In FY21, HSV paid a final dividend of GBX 19.80 per share on 2 August 2021

Market Opportunity

Growth Prospects (also mentioned in AGM Trading Statement released on 16 July 2021)

• Expanding Reach in the Under-Penetrated Market: North America also has the Group's most established HVAC business and in FY21 acquired a further seven businesses to support growth. In FY21, the Company achieved 7% customer growth and 22% revenue growth in the region. For the medium to long term targets, the Company plans to increase their customers from 6 million to 7 million from the present levels of 4.7 million. On the revenue front, the Company plans to reach USD 120-125 million in revenues while keeping the margins steady in the range of 24%-26%.
• Strong Presence Across Europe While Exploring Japanese Markets: The Company has a solid base across the UK, France, and Spain with the most established business in the U.K., a high customer retention rate in France and increased product diversification in Spain. In addition, the Company entered the Japanese market through its J.V. with Mitsubishi Corporation, which gives the Company access to 7 million new households.
• E-platform Driving Growth: The Home experts segment provides an online platform to find a local trade to help them with home repairs and improvements. The Checkatrade portal continues to strengthen its leadership position in the U.K., while Habitissimo is the market leader in Spain. The Company also acquired a 79% stake in eLocal.com to expand its market reach in the U.S. The Company remains optimistic about the growth of its Checkatrade brand and plans to achieve 150,000-200,000 trade targets from the current level of 44,000 in FY21. The Company also plans to improve the revenue per trade from £939 to £1200-1300 in the medium to long term.

Key Risks 

• Competition: The Company faces high competition in the U.K. market; however, the competitive level is steady in the region. However, the under-penetrated market in North America could attract competition from the local and international players.
• Acquisition Risk: In FY21, the Company increased its M&A, which increases the acquisition risk. If the Company fails to synergize with the acquired Company appropriately, it could lead to high costs and losses.
• Loss of Partners: The Company's business depends on the solid relationship maintained between its partners. Failure to maintain the relationship could impact HomeServe’s future customer and policy growth plans and retention rates.
  

Now we will analyze some key fundamental and shareholders statistics of HomeServe PLC

Financial and Operational Highlights (for the twelve months ended 31 March 2021 as of 18 May 2021)

(Source: LSE Website)

• HSV’s revenue went up by 15% to £1.3 billion and adjusted PBT up by 6% to £191.3 million, driven by exceptional North American Membership & HVAC performance.
• The Company saw significant progress in Home Experts, as the Checkatrade in the U.K. saw market-leading gains in consumer demand with a 23% increase in web visits to 29 million and an 11% increase in paying trades to 44,000.
• The fall in statutory PBT was due to the management’s decision to write off the UK CRM system at the cost of £84.8 million.
• In the growing region of North America, the net policy income increased by 13%, and the repair network income increased by 90%.
• The number of policies increased by 10% in FY21.

Financial Ratios (FY21)

 Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 20 September 2021, at 8:15 AM GMT+1, HSV’s shares were trading at GBX 966.00, down by 0.41% against the previous day closing price. Stock 52-week High and Low were GBX 1,288.00 and GBX 905.50, respectively.

On a daily chart. the stock price is sustaining around the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term.

In the last five years, HSV’s stock has delivered a decent positive return of ~69.69%. Also, it has outperformed the FTSE All-Share Household Goods & Home Construction index with a return of about 7.26% and the FTSE 250 index with a return of about 30.44%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

HSV delivered an excellent performance in FY21, with a significant revenue growth. Net policy income rose 13%, with a 10% growth in the number of policies seeing it break through the eight million mark, whilst income per customer grew by 6%. The revenue from the repair and HAVC installations grew substantially, mainly due to the Company's performance in North America. The management remains optimistic on the growth prospects of North America as a pipeline for signing new utilities remained strong, and the region also saw an addition of 6 million gross households, which is 58% higher than FY20.  The growth in the online platform remains robust, with solid guidance for Checkatrade in the medium to long term. 

Considering the Company’s expansion in the new territories, rise in market opportunities and reach, its continued acquisition plan, the better profitability, liquidity and solid guidance for the future, and support from the valuation as done using the above method, we have given a “BUY” recommendation on HomeServe Plc at the current price of GBX 966.00 (as on 20 September 2021 at 8:15 AM GMT+1), with lower-double digit upside potential based on 24.82x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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