Homeserve plc’s Profits To Meet Expectations

The shares of Homeserve (LSE: HSV) added 3p to 310p during early trade this morning after the insurer and home repairs provider revealed that profits would be in line with expectations, despite recent challenges such as a heavy fine from the FCA for mis-selling home insurance cover.

The Walsall-based firm previously set aside £6 million to cover the fine — which came in at £34.5 million — so the provision has since been increased by £30 million.

Homeserve added that it had 2.1 million customers at the end of December — a number it hopes to maintain. Product enhancements and improved customer satisfaction are enabling the firm to keep customers, and it is expected that customer retention will increase from the 81% figure reported in the first half of the year.

Due to the increased costs of the above measures net income per customer for the year is expected to be lower than the previous year.

The company is growing its business abroad and the amount of new customers it took on in the US is 15% higher than the year before. Elsewhere, the number of customers in Spain is expected to double by the end of the year, while financial performance in France remains good with a customer retention rate of 89%.

Before today analysts were predicting HomeServe’s annual results to show earnings per share of 19p per share and a dividend of 11p per share.

Following the slight price movement this morning, the shares may therefore trade on a P/E of 10 and offer a possible income of 3.7%.

The decision to ‘buy’ — based on those ratings, today’s results and the wider prospects for the telecoms sector — is solely your decision.

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> Mark does not own shares in Homeserve. The Motley Fool has recommended shares in Homeserve.