ii view: HomeServe is beneficiary of Covid home improvements boom

This owner of the Checkatrade website is growing services overseas with North America its biggest area. 

First-half results to 30 September  

• Revenue up 17% to £537 million
• Adjusted pre-tax profit up 16% to £33 million
• Net debt up 30% to £587 million
• Dividend payment up 7% to 6.2p per share

Guidance: 

• Expects full-year profit ahead of the current analyst consensus forecast

Chief executive Richard Harpin said:

"What HomeServe stands for - making home repairs and improvements easy - has never been more important. The stresses of living and working through a pandemic mean that we are all more aware than ever of the value of home comforts. Our strong policy retention in the first half underscores the value our Membership customers place on the service we provide.

"Against this challenging backdrop, I am really pleased that the business continues to perform well. Based on what we see today, we are confident of delivering a healthy mix of organic and acquired revenue growth at the full year, with profits ahead of our prior expectations."

ii round-up:

UK and overseas home repairs and improvements company Homeserve (LSE:HSV) has pushed current full-year profit estimates higher as housebound occupiers placed even more emphasis on fixing and upgrading their homes during the pandemic. 

The owner of repairs and service business HomeServe had suffered no fundamental change in its operations during the latest lockdowns, as engineers had been able to continue visiting customer homes. 

HomeServe shares rose by more than 2% in UK trading, bringing their gain since late March pandemic induced lows to over 50%. Its shares rose by more than 40% during 2019. 

The number of paid-up customer members in its biggest North America region rose by 7% to 4.5 million, with the average customer spend improving to $105 from $98. Its home experts businesses, including Checkatrade and Habitissimo, enjoyed record levels of consumer demand during the period. Visits to its Checkatrade website numbered 13.3 million, up from 11.5 million in the first half of 2019. 

Expansion via acquisitions continued as nine purchases across North America, France and Spain pushed net debt up by 30% to £587 million. A 7% increase in the interim dividend to 6.2p per share added to the near 10% hike given to last year’s final payment of 17.8p per share.  

ii view:

The business, founded in 1993, operates across the two segments of customer membership and home experts. Membership services appeal to insurance minded homeowners and operates established businesses across the UK, North America, France and Spain. Its newer home experts business caters for homeowners who search online for local trades to help with their home repairs and improvements. Brands include Checkatrade, Habitissimo and eLocal. In 2019, North America generated two-fifths of overall group revenue, the UK just over a third and Continental Europe a quarter. 

For investors, declining UK customer memberships and an estimated price/earnings (PE) ratio above both the three- and 10-year averages offer some reason for caution. But a likely increase in more people working from home in future, given the adjustment made under the pandemic, could see demand for trades staying robust, while expansion overseas and acquisitions are being pushed. In all, sales, profit and dividend momentum provide enough attraction for longer-term investors.

Positives: 

• Diversity of product and geographical location
• Six years of consecutive dividend increases

Negatives:

• Net debt up 30% to £587 million
• UK membership down to 1.7 million from 1.9 million

The average rating of stock market analysts:

Buy