HomeServe raises guidance as US momentum continues

With the Covid-19 pandemic forcing people to spend more time at home, that has proved a boon for emergency home repair specialist HomeServe (HSV). Offering subscription-based maintenance assistance, the group’s membership business saw sales rise by 8 per cent year-on-year in the six months to 30 September to £437m. With growth being led by North America, this translated to overall adjusted operating profit climbing by 17 per cent to £44m. The decline in statutory profits reflects the previous year benefitting from the proceeds of business disposals.  

Over in the ‘home experts’ division – which matches customers with tradespeople – revenue came close to tripling to £69m thanks to last year’s addition of a majority stake in eLocal in North America. The segment remains loss making, although the adjusted operating loss narrowed to £4.4m versus £8m a year earlier.

HomeServe spent £47m on nine acquisitions during the half, pushing net debt up 15 per cent from the March year-end position to £587m. Equivalent to 2 times adjusted cash profits (Ebitda), this is as at upper end of the group’s target multiple range of between 1 and 2, although leverage is expected to come down in the second half.

On the back of a better-than-expected first half, the group is guiding that full-year adjusted pre-tax profit will come in “slightly ahead” of company-compiled consensus of £186m. Broker Liberum has upgraded its forecasts, placing adjusted pre-tax profit at £189m for the full year, rising to £220m in 2022.

While HomeServe has cyclical vulnerability, the subscription model should prove defensive during a downturn. Looking further ahead, there are still long-term growth opportunities in the underpenetrated US emergency home cover market. Buy.

Last IC view: Buy, 1,191p, 19 May 2020