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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
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.
Rupert is the Deputy Digital Editor of MoneyWeek. He has been an active investor since leaving school and has always been fascinated by the world of business and investing.
His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert was a freelance financial journalist for 10 years before moving to MoneyWeek, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them.
He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.
Lloyds, Halifax and Bank of Scotland to shut another 45 branches
Lloyds Banking Group, which includes Halifax and Bank of Scotland, is set to close a further 45 branches in 2024 - find out if a branch near you is closing.
By Vaishali Varu Published
US stock trading app Robinhood launches in the UK
The low-cost trading platform has opened another waiting list for British investors - following two failed attempts to launch in this country - and is hoping to be fully operational next year.
By Ruth Emery Published
Halifax: House price slump continues as prices slide for the sixth consecutive month
UK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
By Kalpana Fitzpatrick Published
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?
UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
By Marc Shoffman Published
Pension savers turn to gold investments
Investors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
By Ruth Emery Published
Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
By Marc Shoffman Published
Best investing apps
We round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
By Ruth Emery Last updated
The top funds to invest in - November 2023
Tips Investors are focused on income strategies and FTSE heavyweights. We look at what investors have been adding to their portfolios in the last month
By Vaishali Varu Last updated
The world’s best bargain stocks
Searching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
By Andrew Van Sickle Published
Revealed: the cheapest cities to own a home in Britain
New research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
By Ruth Emery Published