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Shares in home repair specialist surged following the news of a potential approach from Canadian firm Brookfield Asset Management
Thursday 31 Mar 2022 Author: Mark Gardner

Homeserve (HSV) 880p

Gain to date: 30%

Original entry point: Buy at 675p, 24 March 2022

Just as soon as we had recommended home repair services group Homeserve (HSV) as a buy on 24 March, its shares jumped sharply following news that Brookfield was considering a possible offer for the group.

Brookfield Asset Management is one of the world’s largest alternative investors with $688 billion of assets under management.

There are a number of factors that make HomeServe a natural target for private equity ownership. These include its inflation-protected, annuity-like income streams. Specifically the defensive and recurring nature of its revenue enables it to support higher levels of debt.

A recent industry transaction, whereby American Water disposed of its US Homeowner Services Group, suggests there could be further upside in Homeserve’s share price.

The sale in 2021 for $1.27 billion, equated to enterprise value per customer of $850, and an EV to EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation) multiple of 15 times.

Using this same EV to EBITDA multiple it would imply a Homeserve share price of £10. Alternatively using the $850 value per customer generates a value of £14.50.

SHARES SAYS: Sit tight and see how the bid situation plays out. 

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