Harry Smith – Senior Investment Analyst – 30 October, 2019

Last month I was on the road. Visiting management of portfolio companies, meeting their key competitors and searching for new investment ideas. I was on the lookout for companies that operate in an industry with a large and growing end market.

One such company is HomeServe. I have loosely followed their progress over the last year. While in London, it was a good opportunity to meet senior management.

REPLICATING HOMESERVE’S SUCCESS IN THE US MARKET PRESENTS A HUGE OPPORTUNITY

The company’s core business is an insurance intermediary for home appliances, such as boilers or other plumbing and heating needs. HomeServe partners with utility companies, who sell polices on HomeServe’s behalf for a commission. HomeServe collects policy fees after underwriting costs and income from repair services.

The company is entering the US where HomeServe sees ample opportunity. Currently 8 million US households have home appliance insurance. The same number as the mature UK market. However, the 135 million households in the US is five times the size of the UK.

The US resembles a $3.75 billion market opportunity for HomeServe. Penetration of home appliance insurance is 30% in the UK. If the US reached the same penetration, it would imply additional 30 million households. Each policy is potentially worth $125 for HomeServe.