"Emergency home repairs business Homeserve (HSV) is trading on a relatively high multiple but Liberum is expecting returns from growth and yield from the scalable platform this year.
Analyst Joe Brent retained his buy recommendation and target price of 950p on the stock after an inline pre-close update.
We see a 2018 price/earnings of 20.6x falling to 18.7x in 2019 as a relatively high multiple but total shareholder return will come from growth, yield, and occasional specials, and/or accretion from acquisitions, he said.
We think it is legitimate to view Homeserve as a scalable platform, capable of exceptional growth.
Brent noted that UK retention rates and customer numbers were expected to remain stable and management had strengthened to assist international development.
Trials at the digital businesses are ongoing and we will hear more at the full year, he said.
"There's no stopping LSE:HSV:Homeserve, it seems. Analysts continue to call the home emergency repairs business up correctly. We heard that some were tipping the stock to above Â£7 after a trading update back in April with shares then at ..."
HomeServe has delivered 22% growth in adjusted operating profit in FY17, towards the top end of the consensus range and 1% above our estimate. Though boosted by an FX benefit on translation, underlying organic growth was strong, reflecting the increasing traction of HomeServes business in North America, as well as solid growth in other markets. We increase our estimate for FY18 operating profit by 1% to £132.4 million.
<b>HomeServe described FY17 as a 'transformational year' for its business in North America. The acquisition of USP accelerated the growth in operating profit (+50%) and customer numbers, which were up 28%, passing 3 million.</b> Organic growth was also an important factor. HomeServe is now at 50 million affinity partner households, in our opinion well on the path to achieve its target of 80 million in due course.
Shares in home emergency, repair and installation services provider, Homeserve (LSE: HSV) have also shown great momentum over the last year. Priced at 463p exactly one year ago, they changed hands for 700p before today a corking 51% rise.
In the 2016/17 financial year, the Walsall-based business recorded a 24% increase in revenue to £785m and pre-tax profits of £98.3m a climb of 19% on the previous years figure.
Growth overseas was particularly impressive with record performance achieved in North America. Over the last year, the company has managed to pass the 3m customer milestone, sign up 100 new partners and increase adjusted operating profit by 75% to just over £21m. Customer numbers in France and Spain also rose, by 4% and 7% respectively.
<b>Looking to the future, the £2.2bn cap is expected to post earnings per share growth of 18% next year, leaving the stocks on a P/E of 23. Thats pretty rich by most investors standards. Nevertheless, with such superb numbers being revealed today, I think this can be justified. Judging by the 12% jump in its share price this morning, the market would seem to agree.</b>
We maintain our estimates for FY 18, having outlined our rationale in detail in our note released in April. We continue to expect PBT of £136m, an increase of 21% on FY 17, and we
continue to expect FD EPS of 31.4p with a usual H2 weighting of c.70%. We assume that net capex falls from £66m in FY 17 to c. £25m in FY 18. We continue to expect that net debt decreases each year to the end of our forecasting horizon assuming no further acquisitions and expect net debt / EBITDA to fall from 1.9x in FY 17 to 0.7x in FY 20. We believe there continues to be plenty of headroom given HomeServes strong cash generation, and c .£400m of facilities including a £300m RCF committed to 2019, a 50m term loan for re-payment by 2020, and £50m of private placement funding due for repayment in 2022. We do not expect any impact from the increase in IPT (increasing
from 10% currently to 12% from 1st June) and the company sees it as a straight pass-through to customers.
We see a CY 17 P/E of 23.4x falling to 20.8x in CY 18 as a relatively high multiple, but TSR will come from growth, yield and occasional specials or earnings enhancing deals. We think it is legitimate to view HomeServe as a scalable platform, capable of exceptional growth. SoTP gives a fair value of 760p. BUY.
BUZZ-HomeServe: hits record high on results beat<.FTMC><HSV.L>
* British repair and insurance firm HomeServe <HSV.L> up nearly 10 pct to a record high after FY results beat
* Revs +124% to £785m (vs Liberum £744m) and underlying FD EPS increased 22% to 26.5p (vs Liberum 25.9p) [nFWN1IP00X]
* FY17F EPS 2% ahead, driven by a slightly lower tax rate, Jefferies writes
* Co sells cover for household emergencies such as boiler breakdowns and burst water pipes
* Best day since April, when co forecasts FY adj PBT at upper end of market consensus of £105m to £112m (reports £112.4m) [nL3N1HE2E4]
* Co has ambitions to expand in one new country/yr & CEO says prospecting on multiple fronts currently
* >40% 30-day daily avg vol through in 25 mins of trade
* Stock outperforming midcap index YTD
([email protected], [email protected])
All our businesses are performing well and have good prospects. Looking ahead, we expect further strong growth in FY18, principally driven by our rapidly-expanding business in North America. This reflects the increase in customer numbers, combined with the benefit of the USP acquisition, which we expect to deliver around $15m EBITDA this coming year.
We are excited about the future for all of our businesses. We have a strong platform for growth over the years ahead and our strategic focus on home assistance, repairs and improvements will enable us to meet the needs of a wide range of customers.
I would question that Homeserve already provides "enhanced disclosures to customers with regards to pricing".The renewal documents Recently received for my plumbing/heating policy made no mention of last years premium and invited renewal at approx. 100% increase!!
As has happened for a past number of years I objected and with little effort agreed renewal at an 8% increase!!.I can`t image many policy holders renew on the invited premum.
"It was supposed to be a "short statement to confirm trading in line" with expectations from emergency home repairs business LSE:HSV:Homeserve, according to one broker. It certainly wasn't short â and it packed a punch, with shares surging as much ..."
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