Shares in FTSE 100 firm Homeserve (HSV), which aims to make home repairs and improvements easy by matching households with tradespeople through its various websites, fell 5% to 988p after it posted a sharp drop in operating profits due to a sluggish UK market and a sizeable one-off write-down.
US DEMAND STRONG
For the year ended 31 March, the group reported a 15% increase in revenues to £1.3 billion driven by an ‘exceptional’ performance in North American Membership and heating, ventilation and air-con (HVAC) services.
Revenues from the US business were up 22% with operating profits up 27% to nearly $138 million and the new-partner pipeline ‘at its strongest ever’, according to the firm. The US eLocal business alone delivered $18m of operating profits, ahead of expectations.
UK DISAPPOINTS
In contrast, the UK business - the most mature part of the group - saw a 10% drop in operating profits to £72.5 million due to a continuation of the long-term decline in customers.
There were signs of better demand, with Checkatrade experiencing a 23% increase in web visits and an 11% increase in the number of trades paying to use its platform to 44,000.
However, the decision to support trades with deep discounts in the first three months of the pandemic, to help keep them on the platform while they were prevented from working and earning an income, cost the firm in terms of margins.
HEFTY WRITE-DOWN
Compounding the weakness in the UK, the firm took the difficult decision to pull the plug on the eServe customer relationship management (CRM) solution it acquired in 2013 after it became too costly and too unwieldy to use.
The firm is looking at a cloud-based solution instead, most likely from Salesforce.com, similar to that planned for the US. Still, canning its CRM solution meant taking an exceptional charge of £84.8m, hammering group profits.
Chief executive Richard Harpin said: ‘We see demand for high quality tradespeople continuing to grow, as more and more people seek to make their homes better and greener. We are well set up for continued strong growth and an acceleration in performance in FY22.’
EXPERT VIEWS
Analysts at investment bank UBS cut their FY22 above-consensus earnings estimate on continued profit headwinds in the UK and a strong pound impacting US revenues, but kept their Buy view and £15 price target, describing Homeserve as having ‘best in class’ earnings growth.
Meanwhile, analysts at JPMorgan Cazenove nudged their below-consensus FY22 pre-tax profit forecast up by 1% on hopes of strong US growth but cut their price target by 4% to £12.50.
