Homeserve (LSE:HSV) has seen its shares rally this month. The Homeserve share price rose after Canadian asset management firm Brookfield was said to be considering a possible offer to buy the business. Should I add Homeserve shares to my holdings now?
The Homeserve share price journey
Homeserve is an international home repair, maintenance, and home services business. The housing and home services market is a growth market, here in the UK and internationally.
As I write, Homeserve shares are up over 30% in March to date, trading for 898p. At this time last year, the shares were trading for 1,194p, which is a 24% drop over a 12-month period. The decline between this time last year and the early March share price was over 40%.
When talks of a takeover began earlier this month, Homeserve shares rallied. It is worth noting Homeserve released a statement yesterday saying it had not received any formal offer from any interested parties to date.
Should I buy Homeserve shares?
Homeserve’s growth has been excellent over the past few years. It has managed to consistently increase revenue year on year since 2014. The pandemic was a good period for the business as a lack of overseas travel and social events led to consumers spending surplus cash on home improvements and home services. I wasn’t surprised to see the Homeserve share price hit all-time highs at the height of the pandemic, in summer 2020 close to 1,400p.
Looking at Homeserve’s performance, it did suffer a profit drop in FY21 results, but this was due an ill-fated customer relationship management tool, eServe, that did not work out and cost the business over £80m. Analysts expect Homeserve to return to growth this year with a net profit of £161m forecast. Forecasts aren’t guaranteed, however.
One aspect of Homeserve’s growth journey I like, and that has contributed well to its success in my opinion, has been its propensity to acquire other home services businesses to supplement its current offering and grow the business.
Homeserve shares could also be a good passive income option for my holdings. The Homeserve share price currently sports a dividend yield of close to 4%. It is worth mentioning that the dividend per share has doubled since 2016!
Risks and my verdict
Homeserve is operating in a lucrative growth market, and this brings the challenge of competition. There are plenty of home services businesses in the UK and abroad jostling for market share. These competitors could impact Homeserve’s performance and any growth, as well as investor returns.
I believe the Homeserve share price has come under pressure, before the takeover talk, due to rising costs and inflation. This can often lead to profit margins being squeezed, resulting in investor payout being negatively affected.
Overall I’d happily add Homeserve shares to my holdings at current levels. I will keep a keen eye on development involving the risks mentioned and any potential takeover. Homeserve’s dominant position in this lucrative growth market, journey to date with organic and acquisition-led growth, and dividend record boost my bullish stance.