Shares in home repair and improvement firm Homeserve (HSV) shed 2% to £11.90 after the company confirmed its full year earnings forecast but said gearing rose due to a dash to increase market share in the second half.
Homeserve, which signs households up directly through its membership scheme and signs tradespeople up through its popular Checkatrade platform, forecast pre-tax profits of £191 million for the year to the end of March compared with earnings of £180 million for the previous year.
A GROWING BASE
Its membership programme saw strong organic subscriber growth in North America with customer numbers up 7% to 4.7 million, while in the UK it generated higher income per customer from a smaller base of 1.6 million households.
Members take out an insurance policy which means that in the event of an unexpected plumbing, heating or electrical emergency the firm provides qualified tradespeople to fix the problem.
Meanwhile, Checkatrade ended the year with 44,000 paying trades and a further 71,000 trades using the platform either as affiliate or ‘freemium’ members.
RISING DEBT
Homeserve has been on a mission of late to increase its capabilities in the HVAC (heating, ventilation and air-conditioning) segment in its membership markets, to be able to replace equipment for customers as well as repair and service it.
As a result, it made nine acquisitions in the first half of last year and a further 13 acquisitions in the second half. Although the firm tends to enjoy stronger cash flows in the second half, thanks to winter demand for heating repairs, it had to borrow to finance some of the deals.
Net debt was therefore £530 million at the end of March compared with £509 million the previous year, pushing the ratio to earnings before interest, taxes, depreciation and amortization (EBITDA) up to 1.8 times, close to the top of the firm’s range of 1 to 2 times.
Nevertheless, Numis analyst David Brockton kept his Add recommendation and £14.50 price target and said he remained ‘positive on the group’s substantial international growth opportunity across Membership and Home Experts, as well as the high return and resilient nature of its services’.
