HomeServe PLC

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

Rationale for Valuation – BUY at GBX 749.50

• Strong Fundamentals: HSV has witnessed a great momentum in North America with new partnerships. Moreover, it reported a significant increase in top-line and bottom-line numbers during H1 FY22.
• Growth Prospects: 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.
• Dividend: The increase in the interim dividend was underpinned by business resilience, strong future growth potential, and robust cash generation.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-day RSI (~22.58) is in the oversold zone, which the current market price has gone below the lower Bollinger Band.
• Undervalued Multiples: On a forward 12-month basis – EV/EBITDA, Price/Cash Flow, and Price/Earnings multiples are undervalued against the median of the Consumer Non-Cyclicals industry.

Key Risks

• Macroeconomic Uncertainties: As the US Treasury Yield hit two-year high, the US Dollar was rising. Meanwhile, weak industrial data, supply constraints, tightening of monetary policy can hamper the business prospects.
• Omicron Variant: The international markets are opening slower than anticipated due to the resurgence in Covid-19 cases.

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

(Source: Company Website)

• Top-line Growth: During H1 FY22, revenue and adjusted operating profit grew 14% and 24%, respectively.
• Financial Position: Despite strong investments in the period, the financial position remained strong.
• Dividend: It reported a 10% increase in the interim dividend to 6.8 pence, reflecting confidence in the Group’s growth prospects.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

HomeServe reported a strong set of financial results in H1 FY22 with strong performance in North America and early progress to broaden UK business. 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 1,218.00 and GBX 747.50, 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 749.50 (as on 18 January 2022, at 10:15 AM GMT), with lower double-digit upside potential based on 17.67x 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.  

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 unfavourable movement in the stock prices.

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