Interactive Investor

ii view: no takeover news in HomeServe's latest update

5th April 2022 11:12

Keith Bowman from interactive investor

Bigger in the US than in the UK and with the shares having bounced off a five-year low. We assess prospects. 

Full-year trading update to 31 March

ii round-up:

UK and overseas home repairs and improvements company Homeserve (LSE:HSV) today outlined trading over the year to the end of March in line with management expectations. Its core membership or repairs insurance business had retained 84% of its policies, up from 83% over the previous year.

Homeserve shares rose by more than 2% in UK trading, leaving them up by more than 40% over the last month, although are still down by more than 25% over the last year. 

Just last month, Canada’s Brookfield Asset Management announced that one of its funds was considering making a takeover offer for the company.

Homeserve sells home repairs insurance, mostly to customers of water and electricity utilities, under its membership business. It also owns digital platforms such as Checkatrade within its home expert’s business, matching householders with local tradespeople.

For its biggest business geographically, North America, policy retention remained unchanged at 85%, despite the ongoing impact of the pandemic and the hindered ability of engineers to sometimes visit households. 

Management said it continued to widen its customer offering in North America, helping customers to participate in the green homes revolution. 

Early progress on the UK transformation plan was flagged, while both its French and Spanish businesses were summarised as ‘performing well.’

Annual results are scheduled for 24 May. 

ii view:

Started in 1993, today Homeserve offers both home repairs insurance via its membership division and services to help households find trusted trades people via its home experts business. Membership services accounts for most of its revenues at around 90%, with home experts or fees for trades people to sign up to its trade websites the balance. Geographically, the US generates around 45% of sales, the UK around 28% and France and Spain most of the balance. 

For investors, the ongoing hinderance and added costs from the pandemic cannot be overlooked. Declining customer memberships at its most mature UK business continued as of its first-half results, while a cost-of-living crisis globally could see households looking to cut costs going forward. 

On the upside, a possible takeover bid for the company now heads the near-term agenda for investors. That will please existing shareholders who must decide whether to jump ship now or gamble that a bid is made at a higher price, or at all. Adjusted pre-tax profit grew by just over a third during the six months to the end of September, while more than five years of consecutive dividend increases and an estimated yield in the region of 3.4% offer potential attraction to income seeks. In all, the bid interest makes this a tricky one for investors. While this is a good business, the shares have moved lower for a couple of years and only takeover talk has stopped the slide. 

Positives: 

  • Diversity of product and geographical location
  • Over five years of consecutive dividend increases

Negatives:

  • UK membership down to 1.54 million from 1.7 million
  • Net debt as of late September up 9% to £625 million

The average rating of stock market analysts:

Buy

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