HomeServe Plc – Operating with Strong Annual Outcome; Unaffected by COVID-19

FTSE 100-listed HomeServe PLC (LON: HSV) is a Walsall, the United Kingdom-based Company, which is involved in providing repair, heating installation and home emergency services. The Company diversifies the business into different geographies, namely, UK, USA, France, Spain, and New Markets.

On 17 November 2020, the Company will release the interim results for the six months to 30 September 2020.

AGM Trading Update (for the period 1 April to 16 July 2020, as on 17 July 2020)

HomeServe stated that the Group’s membership businesses, policy renewable and mid-term cancellation have all continued in line with historical trends in a traditionally quieter period (1 April to 16 July 2020). The Group has felt no effects from COVID-19 and client satisfaction is at record highs, reflecting strong service levels during the COCID-19 pandemic. The Company has resumed mergers and acquisition activity, with a strong pipeline of targets and four profitable acquisitions completed in May 2020 and June 2020. In Home Experts, consumer demand has recovered strongly across all businesses.

Share Price Performance


1-Year Chart as on 17 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

HomeServe Plc’s shares were trading at GBX 1,349.00 on 17 July 2020 (before the market close at 1:15 PM GMT+1), up by 3.53% against the last day closing price. Stock 52 week High and Low were GBX 1,368.00 and GBX 755.81, respectively.

From the technical standpoint, the shares were trading well above the short-term support level of 50-day simple moving average prices, which reflects an upward trend in the stock and carrying the potential to move up further.

Valuation Methodology
 


Key Risks

The Group is exposed to the effects of political and economic risks. In the short-term period, the market environment remains uncertain and volatile because of Covid-19 pandemic. Global political uncertainty regarding trade policy also poses a risk for the Group, including protectionist measures and regulation or legislation in local markets.

Conclusion

FY20 was another record year for the Group, with a strong performance in the membership business. In the financial year 2020, the Group has shown sustainable growth in North America, with an increase in customer count and two whole home acquisitions for USD 8.0 million. In light of COVID-19, the Group is taking effective action to reduce discretionary spend, capital expenditure and preserve profitability.

Moreover, the Group is also focusing on acquisitions which could benefit the business in the long term. Also, the Company expects a solid performance in FY21, with long-term growth prospects and stated milestone targets unchanged. Overall, the Group has a strong track record of developing productive partnerships and could provide investors with an opportunity to invest for the long term.

Over the course of 4 years (FY16 – FY20), the Company’s revenue grew from £633.20 million in FY16 to £1,132.30 million in FY20, compounding at an annual growth rate (CAGR) of 15.64%.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 1,349.00 (as on 17 July 2020, before the market close at 1:15 PM GMT+1) and will recommend fresh buying at the right time.

G4S PLC – First Half Earnings Higher than Market Consensus After Resilient June Trading

G4S Plc (LON: GFS) is a FTSE 250-listed globally integrated security Company. The Group provides security guards, alarms, monitoring, management and the transportation of valuables and currencies.

On 23 July 2020, the Company will announce the half-year results to 30 June 2020.

Recent News

On 10 July 2020, the G4SCJ (GG4S Care and Justice Services (UK) Limited) entered a DPA (Deferred Prosecution Agreement) with the UK SFO (Serious Fraud Office). G4SCJ would pay a financial penalty of £38.5 million-plus a payment of £5.9 million to resolve allegations of procurement fraud. The penalty is due to three offences committed in 2011 and 2012 related to financial reporting to the UK Ministry of Justice. The G4S subsidiary and the SFO will seek final judicial approval to the DPA (Deferred Prosecution Agreement) on 17 July 2020.

On 3 July 2020, the Company announced the appointment of Adine Grate as Non-Executive Director with immediate effect.

Trading Update (for the five months ended 31 May 2020, as on 17 June 2020)

The Group revenue decreased by 1% year on year for the five months and declined by 7% in April 2020 and May 2020. In the period, the Secure solutions revenue stood at £2,574 million and contributed 90% of the Group’s pro-forma revenue. The Cash solutions revenue reduced by 16% to £187 million, mainly due to the impact of lock-down on the retail and commercial banking segment.

The Secure solutions revenue performance advanced in the Americas and Asia by 6% and 2%, respectively, whereas it declined by 6% in Europe & the Middle East market. On 31 May 2020, the Group had liquidity of £1.5 billion including an undrawn credit facility of £0.6 billion and cash and overdraft facilities of £0.9 billion.

Share Price Performance


 1-Year Chart as on 17 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

G4S Plc’s shares were trading at GBX 132.35 on 17 July 2020 (before the market close at 1:25 PM GMT+1), down by 0.71% against the last day closing price. Stock 52 week High and Low were GBX 223.50 and GBX 69.92, respectively.

From the technical standpoint, the shares were trading well above the short-term support level of 50-day simple moving average prices, which reflects an upward trend in the stock and carrying the potential to move up further.

Valuation Methodology



Key Risks

There are certain principal risks associated with the Company’s business which could affect the overall performance of the Group. Global macroeconomic uncertainty, failure to identify, develop and deploy new technology could hinder growth. Failure to deliver critical contracts effectively and significant customer payment default could affect the revenue and profitability of the Company.

Conclusion
The Group won contracts worth £1.2 billion that would support the business performance in 2020 and beyond. The Group is focusing on providing technology-enabled security solutions. G4S has suspended the final dividend payment for FY2019, and it has deferred tax payment of £100 million to FY21 to preserve cash. Moreover, the Cash Solutions revenue is expected to improve as the lock-down gets eased. The earnings for H1 FY20 will be significantly above market consensus following a resilient trading performance in June. Overall, the Group expects steady net cash flow for the whole year 2020.

Over the course of 4 years (FY15 - FY19), the Company’s revenue surged from £6,863 million in FY15 to £7,758 million in FY19. Compounded annual growth rate (CAGR) stood at 3.11%.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 132.35 (as on 17 July 2020, before the market close at 1:25 PM GMT+1) and will recommend fresh buying at the right time.
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer/Industry information have been taken from Refinitiv, Thomson Reuters.

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