Watch stocks you care about
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
LONDON -- Homeserve (LSE: HSV.L ) is still cleaning up the mess created by sales tactics that have run afoul of the FSA, but the company appears to be making solid progress in markets outside the U.K.
The now fully owned French subsidiary, Domeo, reported 87% retention rates and higher income per customer, which should nicely offset slower growth in customers and policies written.
Customer count is growing quickly in Spain and the U.S. -- 35% and 20%, respectively. While both are expected to report operating losses for the first half, Homeserve is a second-half company -- the greater portion of its revenue and profit comes in the last six months of the fiscal year -- so the losses should be seen in the correct perspective, and the reduced losses in Spain are good news.
This good news can't, of course, offset the fact that Homeserve expects to lose customers this year in the U.K., the market responsible for more than 90% of its operating profit last year. Additionally, the FSA hasn't yet completed its investigation, creating uncertainty around how painful the judgment will be.
Hence the market rating the shares on a price-to-earnings ratio of 6.4 -- investors are obviously concerned about the company's earnings power going forward. While it remains to be seen how much damage Homeserve has done to its brand (and the impending sentence from the FSA will once again put the company in negative headlines), the strong growth in Spain and the U.S., as well as efforts to build a presence in Italy and Germany, provide the company with other avenues for growth.
While the 5% yield on the shares looks attractive, investors need to be confident Homeserve can stem the losses of customers in the U.K. and continue to build its international presence into a more meaningful contributor to the bottom line before buying these shares. Continued struggles could hamper cash flow to the point that the dividend would need to be cut.
Turning around a troubled company is tough going, but investors that find a successful turnaround story can be handsomely rewarded for their confidence and patience.
If you're keen to learn what it takes to be a successful investor, try this free Motley Fool report -- "10 Steps to Making a Million in the Market." The report highlights how markets can provide the big winners to take you to that magic million.
You can download "10 Steps to Making a Million in the Market" for free right now. But hurry, the report is available for a limited time only.
Investing is by no means easy in today's uncertain economy. That's why we've published "Top Sectors of 2012" -- our guide to three favorable industries. This free report will be dispatched immediately to your inbox.
Further Motley Fool investment opportunities: