Can investors clean up with this AIM IPO?

Two men behind Domino's Pizza's surge from £25 million tiddler to £1.8 billion superbrand are listing their newest venture Franchise Brands on AIM. With reputations that precede them, it looks like they have done it again, with profits growth of 50% in just two years from its oven cleaning, car repair and home cleaning businesses.

Founded in September 2008 by executive chairman Stephen Hemsley and non-executive director Nigel Wray, the pair hope to pocket another fortune from their combined 74% in the company. Serial AIM investor Wray, also the chairman and co-owner of Saracens Rugby Club, owns 38.56%, or 14 million shares, and Hemsley 35.6%, or 13 million shares.

The group, based on the Hoo Farm industrial estate in Kidderminster, will use the £3-3.5 million cash raised from the IPO to grow its franchise base, which serves both individuals and small businesses, and buy new franchise brands. Management is currently eyeing-up opportunities in the business-to-consumer service sector.

With over 350 franchises across 12 countries, though mainly in the UK, Franchise Brands owns the car scratch repair brand ChipsAway, premium house cleaner Myhome, and the self-explanatory specialist Ovenclean.

It's a fairly simple franchise model, which sees the firm license the brand and intellectual property to individuals who trade under the franchise. Franchisees pay an initial fee and then an ongoing license fee for the use of the brand.

Serious scope

Charging around £65 for a standard double clean, the group wants to develop the Ovenclean model into a "milk round" business, where customers have two cleans each year which can be diarised ahead of time. They also reckon dirty oven owners are likely to need hobs, microwaves, extractor fans and barbecues, so there's a chance to make more cash there.

Bosses think there is serious scope for growth at ChipsAway and Ovenclean, which they plan to tap into by expanding into underserved geographical areas. The market is pretty big too, with one in three of the 27 million UK households employing someone to help with domestic chores. Spending an average of £127 per month equates to an annual market of £26 billion.

Repairing the 61% of Britain's 35 million cars which suffer minor damage every year could also be hugely profitable for franchisees.

Adding around 50 new people to the franchise books annually, pre-tax profit jumped by over half to £1.1 million in the two years ended 2015 - albeit from a low base - representing 25% of last year's £4.4 million revenue.

Things have gone as expected in 2016 so far, and chiefs are upbeat about the rest of the year. We'll get a better idea in half-year results due no later than 30 September.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.