The misselling scandal that hit HomeServe (HSV) in its home market last year continues to hold back growth. Strip out the £19m in exceptional costs the group incurred trying to remedy its problems in 2013 and pre-tax profits rose just 1.6 per cent to £26m for the half year.
The UK fall-out continued, with customer numbers falling to 2.1m - from 2.2m the previous year. Management expect to end the year with just over 2m customers, which they reckon is "sustainable". UK adjusted operating profit fell 4 per cent to £21.1m.
Prospects look brighter abroad, where management says the group's focus will remain. Its Spanish business showed the strongest growth during the period, with customer numbers up by three-quarters and operating profits more than doubling to £2.2m. Meanwhile, it made a £1.3m loss in the US, but that's normal during the warmer summer months. Customer numbers increased by 20 per cent to 1.7m, mainly thanks to a strategy of partnering with utility companies.
Management now wants to take on more debt: it thinks HomeServe can handle a leverage ratio of 1 to 1.5 times adjusted cash profits, up from its current level of 0.7 times. Since the company is a “cash generative, organic growth business, there's the opportunity to make capital growth more efficient,” says chief executive Richard Harpin.
Broker JP Morgan Cazenove expects adjusted EPS of 18.9p this year, up from 18.6p in 2013-14.
HOMESERVE (HSV) | ||||
---|---|---|---|---|
ORD PRICE: | 336p | MARKET VALUE: | £1.1bn | |
TOUCH: | 335-337p | 12-MONTH HIGH: | 355p | LOW: 236p |
DIVIDEND YIELD: | 3.4% | PE RATIO: | 39 | |
NET ASSET VALUE: | 104p* | NET DEBT: | 22.0% |
Half-year to 30 Sept | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2013 | 241 | 0.6 | 0.1 | 3.63 |
2014 | 242 | 25.3 | 5.6 | 3.63 |
% change | - | - | - | - |
Ex-div: 4 Dec Payment: 2 Jan *includes intangible assets of £399m, or 121p |