Lockdown winner Homeserve has had another strong year

HomeServe's stock price has shot up since Brookfield Asset Management said one of its private infrastructure funds is putting a bid for the home repair company. Rupert Hargreaves explains what is going on.

At the end of March, Canadian financial powerhouse Brookfield Asset Management (TSE: BAM) announced that one of its private infrastructure funds was putting together a bid for the international home repairs and improvements business, HomeServe (LSE: HSV). That sent the FTSE 250 company’s share price soaring by 15%. 

Yet while a full offer has yet to emerge (and there is no guarantee one will at this stage), Homeserve is not hanging around. 

The home repair services industry was a big winner of pandemic lockdowns, and Homeserve has been a beneficiary. Customers who were stuck at home spent more time and money on renovations, validating the firm’s recent expansion. 

Over its financial year to the end of March 2021, adjusted earnings rose by 3%. That’s pretty impressive given that many companies struggled just to stay afloat in the first year of the pandemic. 

Demand for its services continues to grow. Adjusted earnings jumped by 27% in the six months to the end of September thanks to strong performance in its North America market.

And the company’s figures have continued to improve since then, according to its latest trading update. 

Homeserve’s business is making progress on all fronts

In a trading update released today ahead of the publication of its full-year results at the end of May, the firm reported an “acceleration in performance” compared to its 2021 financial year. 

In the year to end-March 2022, customer retention rose to 84% compared to 83%, while the number of “affinity partner” households grew by a net seven million (compared to two million previously) to 73 million (up from 66 million).

What’s an affinity partner? Under the scheme, utility companies allow Homeserve to provide services on their behalf to consumers. Utilities have the advantage of being able to rely on a trusted third-party brand with a wide customer base without needing to invest large amounts of time and resources. The agreement also benefits consumers who are able to access a range of services through one supplier (Homeserve). 

The group also wants to help consumers burnish their green credentials. It has launched an installation and maintenance proposition for domestic electric vehicle charging. This is now available to nine million homes through a new 4.6 million household utility partnership. 

Other products across the group also made decent progress, notably the Home Experts division, which owns the Checkatrade brand (which aims to help consumers find reliable tradespeople more easily). 

This unit was profitable for the first time on a full-year basis, with Checkatrade leading the charge. The platform ended the year with 47,000 paying trades (up 7% year-on-year) and average revenue per trade is expected to exceed Homeserve’s “Milestone 1” target of £1,200.

The company ended the year with a net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of two (up from 1.8 times last year), as acquisitions offset cash generated from operations. 

Growth at a reasonable price – even if there’s no bid

A bid from Brookfield would be a nice windfall for shareholders, but Homeserve’s underlying growth is reassuring and picking up momentum. Further, the recurring nature of the company’s subscription business generates a steady stream of cash for the business to reinvest. 

The broker consensus on 2022 earnings per share (according to Refinitiv data) is 48.7p. That’s a 14% increase on 2021. The resulting forward price-to-earnings (P/E) ratio of 18.2 does not look too demanding considering the recurring nature of the company’s business model.

Recommended

The MoneyWeek portfolio of investment trusts – March 2023 update
Investment trust model portfolio

The MoneyWeek portfolio of investment trusts – March 2023 update

A decade ago we set up the MoneyWeek portfolio of investment trusts. It proved a success, says Andrew Van Sickle.
27 Mar 2023
Energy prices expected to fall in July - should you switch to a fixed energy tariff?
Energy

Energy prices expected to fall in July - should you switch to a fixed energy tariff?

Fixed energy deals are starting to make a comeback, with one major provider already offering it to existing customers - we look at how much they may c…
27 Mar 2023
State pension errors – women with husbands aged over 80 could be underpaid
State pensions

State pension errors – women with husbands aged over 80 could be underpaid

Some married women could be missing out on their full state pension, but the DWP has no plans to contact them directly. We explain how you can check i…
27 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023

Most Popular

Share tips of the week – 24 March
Investments

Share tips of the week – 24 March

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages
24 Mar 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023