Insuring householders against burst water pipes and broken boilers is lucrative work, judging by the performance of Homeserve.
The company has just issued a trading update indicating that it expects annual profits at its core membership business to be at the top end of market expectations, thanks to a strong finish to the year.
In the UK it reported 1.8m gross new policy sales, with renewal levels remaining high in February and March. Its European business is also doing well, and in the US it is talking to a number of utilities about new partnership deals.
The company's shares are up 59p to £18.19 on the news. Caroline de La Soujeole at Seymour Pierce said:
The shares have reached our previously stated target price of 1,750p, closing at 1760p and are trading on a prospective PE of 16.5 times 2010 forecasts which is low compared to its historic average of 21.1 times but at a premium to the support services average of 15.5 times 2010. However given the group's strong growth potential in its international business and continued good performance from the UK membership business, we think the shares remain undervalued. We stick with our outperform recommendation and raise our target price to 1,900p.
But Panmure Gordon has a sell rating on the company and maintains its position for now:
We moved to a cautious stance last summer after a strong run in the shares. The exit from its Emergency Services operations, while not as straightforward as we had expected, is now done. Future share price momentum is likely to come from new partner discussions, particularly in the US. In the medium term we are comfortable with the group's strategic direction.
