Homeserve platform holds big potential

The group made an initial investment in Checkatrade, an online platform for hiring tradespeople, in February last year, buying 40 per cent of the business. The purchase included an option to buy another 35 per cent in two years, but last November management decided to fork out £54m for the remaining 60 per cent. The initial investment in Checkatrade was made alongside the purchase of 70 per cent of Habitissimo, a similar online platform based in Spain serving a number of countries in Europe and Latin America.

The two deals in tandem are intended to aid the development of a global, on-demand Home Experts platform, connecting customers with tradespeople for repairs and improvements. The group is running the two businesses separately, investing profits into the testing, expansion and marketing of the platform. Broker JPMorgan Cazenove estimates that the home repair and improvement market is worth around £400bn, which is something well worth getting a slice of. While the two businesses provide similar services, in the half-year results management made special mention of the consumer experience provided by Checkatrade, and Habitissimo’s ability to expand into new countries with little or no local footprint. 

In October last year the group completed a £125m share placing at 820p, which will in part be invested in the development of Home Experts.

The development of the Home Experts platform holds exciting potential, but it is not the only reason to be excited about the group's prospects. Last year's fundraising will also be invested in policy book acquisitions and building out the group’s heating installation capabilities.

In August last year the group acquired Help-Link to increase its capacity for boiler installations in the UK, becoming in the process the second largest boiler installation business in the country. It followed this with the acquisition of Energy Insurance Services Ltd, which provides central heating and control system insurance in the UK, adding to the group’s systems and capabilities for boiler self-fixing. The aim with these acquisitions, along with the continued investment in water leak alarm technology LeakBot, is to build a UK home heating business providing services across installations, servicing and repairs. The group’s latest results also mention it is developing a “global heating strategy”, indicating its long-term ambitions may mean expanding the heating business beyond the UK.

Indeed, in the established business it is overseas markets that offer the real growth potential. Customer numbers were flat in the group’s core UK business at the last update, and broker UBS sees little potential for organic expansion in the domestic market, which accounted for two-fifths of sales last year and half of underlying profit.

The broker is, however, forecasting 27 per cent compound annual profit growth out to 2022 from international operations. The US business recorded its first ever profit in the first half of the current financial year, driven by strong organic growth and contributions from Utility Service Partners, which it acquired in early 2016. The further acquisition of the home assistance policy book of Dominion Products and Services further expanded the business, while its French and Spanish businesses are alos performing well. The European businesses likewise saw strong improvements in profits and revenues. Homeserve has been looking to expand into new geographies through joint ventures and partnerships. It already has a venture in place with Edison Energia in Italy and is in discussions with potential partners across Europe and Latin America.

Recent acquisitions led to a 20 per cent increase in first-half net debt to £304m, equivalent to 1.9 times cash profits. This is expected to come down to a range of 1-1.5 times at the end of March this year, but management has said it is willing to forgo this if it comes across appropriate investment opportunities.