Home emergency and repairs company Homeserve (HSV) sees its value increase by £190m after UBS changed its stance on the firm from ‘hold’ to ‘buy’.

Its share price is up 7.8% to 815.5p on release of the UBS note. The investment bank’s analyst, Rory McKenzie, is impressed with Homeserve’s international business. He says it has made a ‘step-change’ in the company’s growth profile.

Shares saw the opportunity with this highly cash generative company over a year ago, impressed with its ability to withstand changes to regulation for instance.

HITTING TARGETS EARLY

UBS says that Homeserve could potentially double its customer numbers within five years. McKenzie adds the company will hit their US customer target of 8m two years sooner than it had previously forecast.

Homeserve which dubs itself the ‘fifth emergency service,’ is forecast to grow its international earnings before interest and tax at a compound annual growth rate (CAGR) of 23% between 2018 and 2022.

UBS’ international CAGR is the main reason its whole company growth rate is four percentage points above the consensus CAGR of 11%.

The bank views that Homeserve can increase its household coverage, customer penetration and revenue per customer substantially across its existing markets.

UK IS NOT THE WEAK LINK

While the majority of Homserve’s growth appears to come from international opportunities, its UK operations are not a drag on the company’s profits. McKenzie says product range expansion will drive a steady, if low, growth in customer numbers and revenue per customer. He adds that a harsh winter could add some upside in the near term.

UBS feels that Homeserve’s ‘home experts’ offering has not been priced in as the business model has not been monitised and scaled properly yet.

The company acquired the remaining stake in Checkatrade, an online directory of tradespeople last November.  It also acquired a 70% stake in the Spanish equivalent Habitissimo around the same time, the idea to connect homeowners and consumers with tradesman in the UK and Spain.

UBS believes that if Homeserve can get these acquisitions working properly it could add between 10% to 20% to sales, profits and enterprise value.

Homeserve trades 25.4-times 2018’s earnings using UBS’ forecasts so it seems that the company’s international growth potential is priced in to some degree.


Issue Date: 16 May 2018