HomeServe PLC (LON: HSV)  

HomeServe PLC is an FTSE 250 index listed United Kingdom-based company. It is engaged in providing repair, home emergency and heating installation services. The Company operates in UK, North America, Spain, France, and other emerging Markets. HSV is engaged in the design of a range of water, heating and electrical related home assistance products and offers connected home solutions.

Recent trend of Dividend Payments

HSV had paid an interim dividend of 6.80 pence per share attributable for H1 FY22 on 07 January 2022 with an ex-dividend date of 09 December 2021, driven by excellent bottom-line profitability growth achieved during the period. In comparison, the Company had paid an interim dividend of 6.20 pence per share for the prior year. Thus, the interim dividend growth came out to be around 10%.

(Source: LSE; Analysis done by Kalkine Group)

Growth Prospects

• Disposal Activities: On 13 December 2021, the Company had decided to sell the Piedmont Policy Book to Piedmont rather than continue to manage it in run-off. The Company would reinvest the sale proceeds in organic marketing with an aim to replace the customers lost from this transaction by the end of 2023.
• Strong Geographic Presence: The Company has a solid base across the UK, France, and Spain with the most established business in the UK, a high customer retention rate in France and increased product diversification in Spain.
• Online Business: HSV would continue to make accelerated progress in terms of innovation in the leading online platform, Checkatrade. Furthermore, it will add significant long-term value in the Home Expert division during FY22.

Key Risks

• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Loss of Partners: The Company's business depends on the solid relationship maintained between the partners. Failure to maintain the relationship could impact HomeServe’s future customer and policy growth plans and retention rates.
• Record UK Inflation: The annual rate of UK consumer price inflation reached 5.5% in January 2022, the highest since March 1992. Thus, it can adversely impact the London equities.

Key Fundamental Statistics & Shareholding Pattern of HomeServe PLC.  

Harpin (Richard David) is the most significant shareholder as it holds nearly 40.94 million shares as of 31 December 2021.   

Financial Highlights (for the six months ended 30 September 2021, as of 16 November 2021)

(Source: Company Filings)

• Revenue Growth: Owing to robust performance in North America, Home Experts, and Continental Europe, revenue and adjusted operating profit grew 14% and 24%, respectively, during H1 FY22.
• Home Experts Division Turns Profitable: During H1 FY22, the Home Experts division generated an adjusted operating profit of £3.7 million (statutory operating loss of £1.3 million during H1 FY21).
• Financial Position: Despite typical first half seasonality and investments in the period, the financial position remained strong.

Financial Ratios (H1 FY22)

Share Price Performance Analysis 

(Source: Refinitiv; Analysis done by Kalkine Group)

On 28 February 2022, at 09:27 AM GMT, HSV’s shares were trading at GBX 660.00, down by around 1.71% from the previous day closing price. Stock 52-week High and Low were GBX 1,218.00 and GBX 659.00, respectively.

From a technical standpoint, HSV is hovering around the lower Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~23.24 confirms an oversold position.

Valuation Methodology: Price/Earnings Approach (FY22E)

Business Outlook

HSV has produced a stellar H1 FY22 business performance with significant growth in top-line revenue and bottom-line profitability. The Home Experts division remained on track to achieve profitability during FY22. The Board remained confident to deliver an acceleration in performance in FY22 compared to FY21. Moreover, the increase in the interim dividend was underpinned by business resilience, strong future growth potential, and robust cash generation. In a nutshell, the Company would keep generating long term returns for the shareholders with an increased focus on sustainable growth in North America, market-leading Home Experts platform and broadening of the UK business.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the expansion opportunities, robust profitability, regular dividend payments, decent financial performance during H1 FY22, and support from the valuation as done using the above method, we have given a “BUY” recommendation on HomeServe PLC at the current market price of GBX 660.00 (as of 28 February 2022 at 09:27 AM GMT), with lower-double digit upside potential based on 16.64x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

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

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

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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