HomeServe Plc and Plus500 Ltd Manages to Deliver Robust Business Growth as per Recent Trading Updates

We all are aware that the crisis of Covid-19 pandemic has brought tremendous turbulence and volatility in the market. Today, in this article, we will discuss trading updates unveiled by home improvement player (HomeServe PLC) and an online trading service provider (Plus500 Ltd). Also, we will gain insights about their operating model and financial performance in the wake of Coronavirus outbreak.

HomeServe PLC (LON:HSV)

(Source: Company Website)

HomeServe is the United Kingdom-based home repairs and improvement service provider, which is operating globally with 106 million affinity service providers and 8.2 million customers. It was founded in 1993 and predominantly caters the market of France, North America, Spain and Italy.

It is currently serving with four business lines:

• Membership: Provides a range of home emergency services with a subscription-based model, which is running through a partnership with utility companies.
• Home Experts: Provides on-demand service and online marketplace to arrange local experts.
• HVAC: Providing a complete range of solutions related to heating, ventilation and air conditioning.
• Smart Home: Enabling home automation and technology distribution, including connecting boilers, smart thermostats and Leakbot.

Five Source Value Creation and its Key Performing Indicators (KPIs)

• Partnerships:
  • Operating with long term partnership with a sizeable network of ~570 utility players.
  • KPI: Affinity partner households.
• Marketing: Includes three specialized areas
  • Innovative product designing.
  • Data-rich marketing across all channels.
  • Power brand building to complement partners.
  • KPI: Policies and Customers.

• Customer Service:
  • Utmost focus on customer satisfaction.
  • KPI: Retention Rate.
• Local Networks:
  • A robust network of tradespeople and inhouse engineers and sub-contractors.
  • KPI: Number of tradespeople.
• Financial Resources and Expertise:
  • Progressive returns by growing organically and through mergers and acquisitions.
  • KPI: Adjusted PBT, EBITDA, Net Debt.

(Source: Company Website)

Recent achievement to Grow Inorganically

• 14^th January 2020: HomeServe Japan Corporation (a joint venture between HomeServe plc and Mitsubishi Corporation), had announced first utility collaboration with Chugoku Electric.
• 2^nd December 2019: HomeServe USA had announced the acquisition of ServLine business division of Sunbelt Group.

Trading Update and COVID-19 Response – Deliver Decent Growth

• On 7^th April 2020, the company continued to deliver robust growth in respect of its financial year ended 31 March 2020, with adjusted profit before tax (PBTA) expected to increase by 12% to £181 million (FY19: £161.7 million), and representing to be ahead of consensus expectations. The Membership business continued to deliver innovative customer service initiatives, decent top-line growth, and efficiency gains.
• Customer numbers, including 4.4 million in North America (FY19: 4.0m), are expected to end the year at 8.3 million (FY19: 8.2 million), with customer growth in France and North America, partially offset the reductions in Spain and the UK. In January 2020, the company has signed a joint venture with Chugoku Electric, reflecting a good start with its first utility partner and covering 2.9 million households. For the Home Experts market in North America, the acquisition of eLocal gave HSV a profitable entry.
• The business stays well-funded and highly cash generative, with gross debt of £585m, net debt of £515m and cash on hand of £125m. On 30^th March 2020, the new revolving credit facility of £50m, showing the total facilities of £780m, with loans maturing of £37m in the next 12 months. On 31^st March 2020, the net debt to EBITDA ratio was 1.9x, within target leverage range of 1.0x to 2.0x.
• Currently, the Board's decision is not to furlough during the COVID-19 lockdowns. With COVID-19, HomeServe acknowledges that the situation is continually evolving and unprecedented. It is reducing discretionary spend and capital expenditure and taking action to preserve profitability.

Business Outlook - Reflecting a Decent Future Outcome

As anticipated, robust profit growth in Membership funded surged investment in New Markets and Home Experts. The company is taking several marketing initiatives at Checkatrade rose revenue by 30%, consumer web visits increased by 32% to 24m, and the number of trades on the platform climbed by 9% to around 39k. The Group is targeting for a full year results to be ahead of the management’s expectations. The Group is also focusing on acquisitions which could benefit its business in the long term. But in the near term, the company will be impacted by COVID-19.

Plus500 Ltd (LON:PLUS)

(Source: Company Website)

Plus500 is global online trading service provider catering through Contracts for Difference (CFD), enabling innovative technology trading facilities on shares, cryptocurrencies, ETFs, forex, ETFs, Commodities, and indices. It has the potential of trading of CFD in over 50 countries with 8 officers in 32 languages. It is regulated in the UK, Singapore, South Africa, Cyprus, Australia, New Zealand, Israel and the Seychelles.

Business Model to Generate Value for Stakeholders

• How to do:
  • Creating value through debt-free capital structure.
  • Adhering to the government policy framework.
  • Advancement of platform.
• What to do:
  • User-friendly technology.
  • Partnership for growth and brand awareness.
  • Providing a range of services.
• Competitive Advantage:
  • Innovative proprietary software.
  • Effective marketing technology to attract customers.
  • Flexible business with the lean cost structure and no royalty and license fees.

Key Performing Indicators to Maximize ROI (as per 31^st December 2019)

• New Customers: 91,388 versus 134,237 in 2018.
• Active Customers: 199,720 versus 304,616 in 2018.
• Average Revenue Per User: $1,775 versus $2,365 in 2018.
• Average User Acquisition Cost: $1,046 versus $934 in 2018.

Strategic Priorities to be Competitive by Differentiation

• Expanding regulatory licenses in current regions and embarking into new geographies and subsequently increasing market share.
• Continuous product advancement to increase customer retention rate and acquisition rate. In 2019, the group acquired over 91,000 new customers, taking their total active customer count to 199,720.
• Driving financial performance through Marketing Machine initiative.

(Source: Company Website)

Key Financial Highlights (USD Millions)

• On 7^th April 2020, the company announced a trading update for the three months ended 31 March 2020 (Q1 FY2020). In Q1 FY20, the group has increased its levels of customer trading activity, with robust performance across all key operational and financial KPIs.
• In Q1 FY20, the revenues increased by 487% to $316.6m from the same period last year, and EBITDA was $231.6m for the current quarter. Led by continued efficiency of the company's marketing algorithms and enhanced conversion ratio, AUAC reduced by 48% against Q1 FY19. On 31^st March 2020, the cash balances stood at $515.6m.
• We are now coming to the recently published annual report 2019, with key growth areas. 2019 was a year of two distinct halves with robust improvement in H2 2019 vs H1 2019, mainly driven by more volatile market conditions: H2 2019 Revenues up 40% to $206.5 million; H2 2019 EBITDA up 93% to $126.7 million; and H2 2019 Net Profit up 94% to $100.1 million. Lastly, the group is a high cash conversion of 88% in 2019.

(Source: Company Website)

Outlook – Reflecting Decent Position for Future

The flexible business model, technological advantage, and optimised cost base will enable the group to adjust rapidly to any upcoming regulation, comprising the impact of any changes projected to be introduced in Australia during 2020. PLUS's financial performance for 2020 will be dependent, among other things, on financial market conditions providing better trading prospects for clients. Q1 performance is expected to be significantly ahead of present consensus anticipations. However, the business stays at an early stage in the fiscal year 2020, and there are ongoing regulatory changes as well as global markets uncertainties (COVID-19), it stays difficult to expect the outcome for the full year.

Comparative Stock Performance of HomeServe PLC & Plus500 Ltd with FTSE MID 250 Index

In the last one-year, HSV and PLUS share price have increased 1.84 per cent and increased 55.32 per cent, respectively as compared to the FTSE MID 250 index performance.

(Source: Thomson Reuters)

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