HomeServe PLC

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

On 5 April 2022, HSV has scheduled to release its pre-close trading update for FY22.

Investment Rationale for Valuation – BUY at GBX 646.50

• Improved GDP: Britain’s economy surged more than anticipated with 0.8% month-on-month growth in January 2022.
• Strong Fundamentals: HomeServe reported a strong set of financial results in H1 FY22 with considerable progress on key strategic initiatives. The Company is hopeful of delivering an acceleration in performance in FY22. Further, the board expects to deliver significant longer-term growth.
• Disposal Activities: On 13 December 2021, HSV had decided to sell the Piedmont Policy Book rather than continue to manage it in run-off. The Company would reinvest the sale proceeds in organic marketing with an aim to replace the customers lost from this transaction by the end of 2023.
• Strong Geographic Presence: The Company has a solid base across the UK, France, and Spain with the most established business in the UK, a high customer retention rate in France, and increased product diversification in Spain.
• Good Progress in Strategy: HSV has delivered a healthy momentum on its key strategic initiatives, including driving growth in North America, transforming, and broadening the UK business, and developing a market-leading Home Experts platform.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-day RSI (~39.74) is close to the oversold zone, while the current market price is around the lower Bollinger Band.

Key Risks

• Macroeconomic Risk: The Russian invasion in Ukraine has already jolted the market, while the slow retail growth, a resurgence in Covid-19 cases in China, and battered consumer spending in the UK amid rising fuel costs can keep the equity market under pressure.
• Monetary Tightening: As the Federal Meeting has signaled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.

Interim Results (for the six months ended 30 September 2021, as of 16 November 2021)

(Source: Company Website)

• Revenue Growth: Owing to robust performance in North America, Home Experts, and Continental Europe, revenue and adjusted operating profit grew 14% and 24%, respectively, during H1 FY22.
• Home Experts Division Turns Profitable: During H1 FY22, the Home Experts division generated an adjusted operating profit of £3.7 million (statutory operating loss of £1.3 million).
• Financial Position: Despite typical first half seasonality and investments in the period, the financial position remained strong.
• Dividend: It reported a 10% increase in the interim dividend to 6.8 pence, reflecting robust performance and confidence in the Group’s growth prospects.

Recent News

• On 13 December 2021, the company announced that HomeServe USA Corp. (HSUSA) has agreed to sell to Piedmont Natural Gas Company, Inc. (Piedmont) the book of policies, which the Company developed during the two Companies' affinity partner relationship (the Piedmont Policy Book).

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

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

*Peers: Johnson Service Group PLC, RPS Group PLC, Marlowe PLC, and Restore PLC.

*All selected peers are LSE-listed Companies from the Consumer sector.

Conclusion

HSV has delivered decent results in H1 FY22 with a healthy rise in top-line and bottom-line numbers. North America posted an outstanding performance and is progressing to achieve a US$230 million adjusted operating profit. Driven by continuous innovation in its leading online platform in Checkatrade, HSV is building significant long-term value in Home Experts and expects to deliver an acceleration in performance in FY22 over FY21. The stock made a 52-week high and low of GBX 1,218.00 and GBX 578.33, respectively.

Considering the strong financial results, increased dividends, improved market dynamics, and support from the valuation as done using the above method, we have given a “BUY” stance on the stock at the closing market price of GBX 646.50 per share (as of 15 March 2022), with lower-double digit upside potential based on 15.43x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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