One attractive option for many people - although not me, it has to be said - is to take out a home maintenance policy.
And perhaps one of the companies that offers this kind of service might be a useful additional to the DIY Income Investor portfolio.
I have looked at Homeserve (LSE:HSV) before and put it to one side because of the bad press its services have attracted - but now I have reconsidered.
Most of their business comes via 'affinity partners' (typically utility companies). Their 'affinity partners' have brands that are related to Homeserve's products - and they market to the partner's customers, using that brand. The benefits to Homeserve are access to the partner's customer base, and a brand name that customers identify with with and trust. Their 'affinity partners' benefit from risk-free income and are able to offer their customers value-added products that build their customer relationships and differentiate them from competitors.
Plumbing contracts make up the bulk of the business, although they also cover electrical, heating, air-conditioning and other maintenance services. I like plumbing as a business - it's always going to be there and when it goes wrong you usually need an expert.
First the bad news: they are under investigation by the FSA (now the FCA) for their apparent mis-selling of policies - CitiWire has reported on this and the previous Ofcom fine for 'silent' telephone calls from call centres. To quote the company's March 2013 Trading Statement on this:
- Revenue up 8% to £229.6m
- Adjusted profit before tax up 9%
- Adjusted earnings per share up 7%
- Interim dividend maintained
- Free cash flow of £10.3m (HY12: £2.3m)
- Net debt £78.1m (FY12: £66.0m, HY12: £36.6m)
- USA: customers up 20%, policy numbers up 25%, customer retention 79%; 5 new 'affinity partners' including a policy book acquisition
- Spain: customers up 42%, policy numbers up 36%
- France (Doméo): strong customer retention 87%, adjusted operating profit1 of £5.6m
- Italy: long-term agreements with Enel Energia and Veritas
- Germany: started test marketing activity
However, the contribution of these businesses to the bottom line is currently quite small: £1.1m versus a total of £27.1m (adjusted operating profit for the half-year), although they make up about 40% of the revenue. But the profitability and growth potential for some of these businesses look like an interesting buffer against the decline in the UK. The international stand-out is the growth in adjusted operating profit at Doméo: 20% for the half-year (against 19% for the UK and decline for other overseas markets).
So, in summary, I see:
- attractive dividend yield and cover
- cheap valuation
- pragmatic down-sizing of the UK market offer, retaining profit margins
- potential for further development of the international business, particularly Doméo
The key factor likely to affect the share price is the FSA/FCA investigation. Given that Homeserve is already contacting customers to try to offer redress, this will hopefully be limited to a manageable fine, if it even comes to that.
If you look at the broker views, there anything from 'buy' to 'sell' and all points between - no consensus.
Overall, I thought it was worth taking a risk with my hard-earned money, based on the medium-term growth potential in its international businesses.
[Purchase price £2.00]
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.