No Pain, No Gain: I'm moving back into Myhome. Let me explain...
Saturday 09 February 2008
I have re-recruited Myhome International, the franchise group that was once the star of the No Pain, No Gain portfolio. The shares have returned to the fold in spite of the fact that year's figures and the accompanying statement were disappointing.
At the time of writing, they are 27p. Last year, the price hit a 106p peak but fell back sharply in the microcap sell-off, and the shares were despatched from the portfolio when they went below my 50p reserve price.
The trading revelations further damaged the shares. Against hopes of nearly £1.9m at the pre-tax level, the group managed just £1.46m, although debt provisions and the tax charge distorted the outcome. And paid-for researcher Equity Development (ED) added to the gloom; it greatly reduced its forecast for this year from nearly £5.9m to £3.6m. Next year, it is looking for £6.4m against earlier hopes of £7.7m.
Although, by some measure, the group fell short, the shares have, I believe, overreacted. The stock market can be an unforgiving place, but the calamitous retreat Myhome has endured seems unjustified. There is no doubt that the group has damaged its City reputation but, at 27p, the shares of what is still a rapidly growing company are selling at around eight times this year's expected earnings and not much more than five times next year's forecast figure. So, even in these depressed times, they are looking remarkably cheap.
I first alighted on Myhome at 15.5p in the summer of 2005. The shares were then traded on the fringe Plus market. They moved upmarket to AIM at the start of last year. Then the group embarked on what can only be described as a takeover binge, which culminated in its biggest acquisition, the £16m takeover of ChipsAway, a franchise group undertaking minor car-repairs and also car valeting.
But the deal did not go smoothly. It took longer than expected, extending into the current year, and it is a major factor behind ED's reduced profit estimate. It seems that management was distracted, prompting a trading slowdown. Whether the group will manage to recover the shortfall in the rest of the year is an open question.
With 12 franchise brands spreading over residential cleaning, gardening, oven and carpet cleaning and plumbing – as well as car repairs and valeting – Myhome relies heavily on the "time poor, cash rich" fraternity. Whether such people will be big players as consumer spending is cut back remains to be seen. Some will no doubt be forced to draw in their horns.
But Myhome's franchisees have not experienced any slowdown. Like-for-like sales are still ahead. The more sedate first-quarter performance stemmed from a lower rate of franchisee recruitment as management wrestled with the ChipsAway acquisition and its integration.
As part of last year's takeover spree, Myhome raised £7.5m, placing shares at 85p and 72p. Institutional investors who took up shares will no doubt be feeling peeved by the subsequent slump. They could be a drag on sentiment. There is, of course, always the danger that a fast-growing company will overreach itself and stumble.
But I remain hopeful that chairman Russell O'Connell has the right formula. And this year's profits will be on target. The group's computer back-up, designed by the Unilever food and soap behemoth when it had a short-lived flirtation with home cleaning, has stood the test of time. After all, last year's profits may, on the surface, appear disappointing but the £1.46m outturn compares with £734,000 the previous year.
The group appears to be having no difficulty stepping up its franchise recruitment programme. It already has more than 800 franchisees, and it is operating, through master franchises, in 14 countries.
Myhome, which is expected to pay a maiden dividend this year, is unlikely to indulge in any significant deals for some time, although the possibility of bolt-ons cannot be ignored.
My U-turn over the shares may cause some surprise. But I do rate the company (although deferred takeover payments could be a worry), and I was a reluctant seller when my 50p limit was breached.
I am not banking on the shares returning to the heady 100p-plus level for some time yet. Indeed, ED now has an 80p target against an earlier 147p. But I – and also, I bet, the institutions that took part in last year's placings – would settle for 80p.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Sales of the tablet are set to fall again, say analysts
Met Police confirm there was a 'minor disturbance' and that no-one was arrested
George Lucas criticises the major Hollywood film studios
Does Chris Grayling realise what a vague concept he is dealing with?
Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets
Parties threaten resort's image as a family destination
I Am Bread could actually be a challenging and nuanced title
Mark Dampier: Woodford’s young companies could be the stars of the future
Money Insider: Help to Buy must be boosted by building
Weekly Money: Round-up of the personal finance stories you may have missed 13-17 October
The opera singer, the broadband delay and why customers aren’t divas if they expect a good service
How to start your own internet business
- 1 Indian footballer Peter Biaksangzuala dies after injuring spine doing somersault celebration
- 4 Drink alcohol and eat meat to improve male fertility - but cut down on coffee, studies suggest
- 5 Brian Harvey turns up at Downing Street and 'demands to speak to Prime Minister'
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Sorry Judy Finnigan – Ched Evans is no less sickening than an alleyway rapist
Residents should throw a street party and mix with immigrant neighbours, councils told
Workers 'could be forced to pay £5 a week' to get benefits
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver allegedly kicks gay couple off for kissing
iJobs Money & Business
£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...
£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village