Should you Book Profit on this Consumer Stock – HomeServe?

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 – SELL at GBX 900.50

• Profit Booking: HSV’s stock price has jumped over 28% in the past 5 days, and thus, investors can evaluate profit booking as per their risk-return profile.
• Potential Offer: On 24 March 2022, HSV affirmed that Brookfield Infrastructure is considering the possible offer for HomeServe. However, there is no certainty that any offer will be made. Brookfield is expected to unveil its intentions by no later than 5.00 PM on 21 April 2022.
• Economic Slowdown: The UK Composite PMI has fallen to 59.7 in February 2022 due to continued concerns over soaring prices, supply chains, and slowing economic growth. Adjacently, British retail sales have also fallen in February 2022 since online orders are receding back to their pre-pandemic levels.
• Macroeconomic Risks: The Federal Reserve announced a first interest rate hike (by 0.25%) in over three years and indicated seven rate hikes in 2022. Moreover, the mounting concern over the Russian invasion of Ukraine can continue to weigh on the equity market.
• Technical Indicator: From a technical standpoint, 14-day RSI (~78.53) is moving towards the overbought position, following the recent spike.

Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)                                                                                                                                       

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

*Peers: Serco Group PLC, RPS Group PLC, Biffa PLC, and Johnson Service Group PLC.

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

Conclusion                                                                                                                                             

Based on the significant notional gains in the short-term, retail market slowdown, macroeconomic risk, bearish technical indicators, coupled with the unfavourable Valuation conducted above, we have given a "SELL" recommendation on HomeServe PLC at the current market price of GBX 900.50 (as of 25 March 2022, at 11:40 AM GMT).

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

Note 2: Investment decisions should be made depending on the investors’ appetite for 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 is subject to the factors discussed above.

Note 3: Target Price refers to a price level that 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 4: ‘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.’

Note 5: Dividend Yield may vary as per the stock price movement.

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