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 918.00

• HomeServe reported excellent performance in FY21, with the acceleration expected in FY22.
• 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.
• Consumer confidence is improving with a shrink in the UK employment rate, while the home services market fundamentals continued to remain positive.
• From a technical standpoint, 14-day RSI (~38.32) is around the oversold territory, while the stock price is hovering close to 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

• Changes in regulatory requirements pertinent to marketing materials, product design, and data protection can impact HomeServe's prospects.
• Evergrande failed to pay interest last week due on US$2 billion-dollar bond maturing in March 2022. As Evergarnde is running short of cash, its debt default is posing a systematic risk to the World’s financial system.
• 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 Home Experts division is on track to achieve profitability in this financial year.
• 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

The Board remained confident to deliver an acceleration in performance in FY22 compared to FY21. 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 905.50, 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 918.00 (as on 28 September 2021, 8:10 AM GMT+1), with lower double-digit upside potential based 24.05x Price/Earnings (approx.) on FY22E Earnings 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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