The elephant in the room has finally found its voice and with a Financial Services Authority (FSA) investigation under way, customers leaving in droves and retention rates slipping, Homeserve looks on increasingly shaky ground. Full-year results from the emergency repair maintenance specialist showed underlying pre-tax profit up 8 per cent to £126m and a healthy dividend increase, but given that mis-selling fears only came to light in October the real concern is what lies ahead. Investors are not waiting to find out and the shares crashed 27 per cent post results.
Customers in the UK declined 10 per cent to 2.7m and retention rates slipped from 83 to 80 per cent in the latest 12 month period. However, chief executive Richard Harpin told the Investors Chronicle that customers have fallen a further 9 per cent since the March year-end and he expects the UK customer base to shrink to around 2.2-2.4m by March. This is a worry since the UK accounts for 80 per cent of group profits so progress made by Homeserve's US, French and Spanish businesses will not be enough to offset the lost profits.
In fact, analysts at Espirito Santo expect current year pre-tax profits to fall 13 per cent to £111m, giving EPS of 24.1p, but the worry is that the worst effects will be felt in 2013/14. The broker said a 20 per cent downgrade to those numbers is now likely which translates into profits of only £100m and EPS of 21p.
HOMESERVE (HSV) | ||||
|---|---|---|---|---|
| ORD PRICE: | 165p | MARKET VALUE: | £544m | |
| TOUCH: | 165-165.3p | 12-MONTH HIGH: | 535p | LOW: 148p |
| DIVIDEND YIELD: | 6.8% | PE RATIO: | 5 | |
| NET ASSET VALUE: | 111p* | NET DEBT: | 18% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 555 | 72 | 79 | 31.2 |
| 2009 | 304 | 81 | 90 | 35.5 |
| 2010 | 369 | 102 | 115 | 44.0 |
| 2011 | 467 | 105 | 24 | 10.3 |
| 2012 | 535 | 138 | 35 | 11.3 |
| % change | +14 | +32 | +48 | +10 |
Ex-div: 27 Jun Payment: 1 Aug *Includes intangible assets of £403m, or 122p per share | ||||
