No Pain, No Gain: Booming home care business is ready to clean up
Saturday 14 January 2006
If the hubbub surrounding Myhome International, a constituent of the No Pain, No Gain portfolio, is to be believed, the business will clean up in style this year. Profits, say its followers, will soar and its shares are tipped to more than double.
I realise that hyperbole is always rife in the gossipy stock market, particularly when small companies are involved. And Myhome is still very much a blue-sky tiddler with a share presence on the fringe Ofex market. Its shares are around 20.5p, giving a capitalisation of approaching £5m.
But, for once, there is real evidence that the group could indeed be on a winning run. Its story is sustainable and I was sufficiently impressed to recruit the shares last summer. I paid 15.5p a time. It was my third Ofex venture. My earlier expeditions had been rewarding and I believe this little domestic cleaning group will also prove to be a successful investment.
I am not alone. Last year it was the most heavily traded Ofex share. Some shrewd entrepreneurial investors, such as Bruce Rowan and Mark Watson-Mitchell, are already on board. So its shares enjoyed spectacular progress - soaring from around 5p to 22p. There are numerous forecasts of how they will perform this year. The analyst Denis Gross is shooting for 42p.
Why the excitement? Gross (and others) expects profits to reach £910,000 this year, putting the shares on about four times prospective earnings. But his sums were concluded before the group added to its armoury, taking over an already profitable gardening business called Nicenstripy, which should take profits of above £1m. There are indications they could top £2m next year.
In the meantime, profits for last year, the 12 months ending September, are expected to be around £120,000 (against a £23,000 loss), which means the shares could be on an exceedingly fancy - but historic - multiple of nearly 35.
Russell O'Connell, the chief executive, is due back from visiting his native Australia this weekend and I would expect the results, accompanied by a bullish trading statement, to be unveiled in the next few weeks.
Myhome is cashing in on two areas - home services and franchising. Indeed, O'Connell appears to have the booming franchising world at his fingertips, embracing a number of ventures. He started in this country with a cleaning operation called Chores, but Unilever, the Anglo-Dutch detergent-and-food behemoth, has actually provided much of the muscle for his clean-up.
It invested in a rival home cleaning enterprise, which it saw as a conduit for its own cleaning products. An expensive computerised system was created to accommodate a market estimated to be worth £150m. But Unilever grew tired of home cleaning. In a revamp that included the cull of some 100 operations it sold the cleaning division to O'Connell who, I suspect, couldn't believe his luck.
Now Unilever's IT is shaping and supporting Myhome's growth. It now has more than 40 franchisees - the cost of buying one has gone up from £20,000 to £25,000 - and more are being recruited. A year ago it had just six. Nicenstripy, already benefiting from the computer back-up, lifts the group's franchise network to more than 70. It will not be long before 100 is topped.
There are opportunities for cross-franchising between domestic cleaning and gardening. But why stop at two basic requirements for the so-called cash-rich, time-poor brigade? There is a variety of services that could be added, ranging from carpets to more esoteric requirements such as insurance. And overseas opportunities beckon with O'Connell's homeland high on the agenda.
Myhome paid £254,500 in shares for 55.8 per cent of Nicenstripy. Franchise Results, a company owned by O'Connell, accounts for 38 per cent of the garden business. The plan is for Myhome to acquire full ownership. O'Connell is also a major force behind another Ofex-traded company, Franchise Investment Strategies where Myhome has a 27.4 per cent interest. FIS has just floated on Ofex its first franchise investment, DTT, offering training facilities for heavy goods drivers. It paid £100,000 for a half share now provisionally valued at £2m.
Unilever still has a stake of around 5 per cent in Myhome, although it needs to display considerable patience if it wants to get its original investment back. The computer system cost £1.5m and the total outlay on its failed venture into home services is thought to be £6.5m. O'Connell paid £300,000 in cash and shares for the residential cleaning business. Still, with Myhome shares edging ahead, the Anglo-Dutch giant can take some comfort from the simple fact that it is slowly recouping the loss that it suffered from abandoning cleaning.
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