HomeServe PLC

HomeServe PLC (LON: HSV) is a FTSE 250 listed Company that provides services related to home repairs and improvements.

On 16 November 2021, HSV expects to report H1 FY22 results.

Rationale for Valuation – BUY at GBX 796.20

• The UK economy bounced back in Q2 2021, reflecting a sign of recovery as the global economy reopens.
• The Home Experts division is on track to achieve profitability in this financial year. The Board remained confident to deliver an acceleration in performance in FY22 compared to FY21.
• The Bank of England decided to keep interest rates steady at 0.1%, which shall benefit homeowners. The UK house prices are also forecasted to increase up to 3.5% between 2022 to 2024 as the demand for more space is likely to drive house prices. Therefore, it should support the demand home repair as well.
• From a technical standpoint, 14-day RSI (~19.52) is around the oversold territory, while the stock price is hovering below the lower standard deviation of the Bollinger Bands.
• Since FY17, gross margin and EBITDA margin have remained higher than the industry median of 47.0% and 16.8%, respectively.

Key Risks

• Due to supply chain problems and labor shortages, UK Manufacturing Purchasing Managers' Index fell in September. Moreover, there is acute pressure on consumer disposable income levels amid inflationary market conditions.
• Changes in regulatory requirements pertinent to marketing materials, product design, and data protection can impact HomeServe's prospects.
• Brexit and resurgence in Covid-19 cases are causing a huge impact on the construction supply chain. Such material shortage can delay projects and cap the expected growth prospects.

AGM Trading Update (for the period 1 April to 15 July 2021, as on 16 July 2021)

• HomeServe continued to witness solid growth in North American Membership & HVAC business.
• The product usage and claim frequency remained solid, while consumer usage sustained high-level in-Home Experts division.
• The UK Membership & HVAC division progressed well on a transformation programme and shall return to stable growth with more diversified and digital efficiency.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

HomeServe reported excellent performance in FY21, with the acceleration expected in FY22. During FY21, the Board recommended a 10% increase in total dividends, underpinned by business resilience, strong future growth potential, and robust cash generation. In FY22, the Company also estimates to report strong growth in its North American Membership & HVAC business, while the Home Experts division is expected to reach profitability. Moreover, as more people seek to make their homes better and greener, the demand for home repairs and services shall continue to grow in future. The stock made a 52-week high and low of GBX 1,288.00 and GBX 802.00, respectively.

Based on the strong trading performance, reiterated guidance, favourable market dynamics, and support from the valuation as done using the above method, we have given a “BUY” stance on HomeServe PLC at the current market price of GBX 796.20 (as on 6 October 2021, at 10:05 AM GMT+1), with lower double-digit upside potential based 21.51x Price/Earnings (approx.) on FY22E Earnings Per Share (approx.).

Impax Asset Management Group PLC

Impax Asset Management Group PLC (LON: IPX) is a FTSE AIM UK 50 index specialist asset manager with £34.4 billion of assets under management (AuM).

Investment Highlights – SPECULATIVE BUY at GBX 1,048.00

• High client demand levels boosted the growth in net inflows and assets under management during Q3 FY21.
• As the world moves toward a sustainable economy, investment in Companies dealing with global sustainability challenges (such as pollution, climate change, resource efficiency, among others) can yield attractive returns for the Company.
• IPX has a solid pipeline for potential investors and shall benefit from the thematic investment in sustainable entities.
• From a technical standpoint, 14-day RSI (~30.55) is close to an oversold position, while the stock price is hovering around the lower Bollinger Band.
• In terms of valuation metrics on forward 12-month basis - EV/Sales, and Price/Cash Flow multiples reflected undervalued position against the Investment Banking & Investment Services industry.

Key Risks

• The likelihood of China Evergrande’s debt default risk poses a systematic risk to the financial markets.
• The structural changes imposed by the Covid-19 pandemic has significantly changed the consumers’ behaviour.
• The constant strengthening of US Dollar can impact the assets’ value.

Q3 AuM Update (for the quarter ended 30 June 2021, as on 7 July 2021)

 (Source: Company Website)

• IPX delivered a strong growth in Q3 FY21 on the back of solid client demand.
• It reported net inflows of £2.3 billion in Q3 FY21, while the assets under management grew 15% year-on-year to £34.4 billion (on 30 June 2021).
• Therefore, Impax has a strong foundation for future expansion.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY21) (Illustrative) 

Conclusion

IPX is an established investor with an ESG investment strategy. Despite the market volatilities, the Company witnessed a strong client demand in Q3 FY21. Moreover, the rapid vaccination drive shall accelerate the economic recovery, and thus, corporate earnings are likely to improve. The post-pandemic fiscal packages introduced by governments across the globe shall also boost investors and consumers' confidence. With the recent growth in AuM, IPX has a robust foundation for further expansion by acquiring an interest in the transition to a more sustainable economy. The stock made a 52-week high and low of GBX 1,330.00 and GBX 500.00, respectively.

Based on the robust client demand, increased assets under management, favourable industry trends, and valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Impax Asset Management Group PLC at the current price of GBX 1,048.00 (as on 6 October 2021, at 10:05 AM GMT+1), with lower double-digit upside potential based on 40.23x Price/NTM Cash Flow (approx.) on FY21E Cash Flow Per Share (approx.).

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

*The reference data in this report has been partly sourced 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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