No Pain No Gain: Myhome looks fit to clean up in domestic market

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The Independent Online

Myhome International, the No Pain No Gain portfolio's one and only Ofex-traded constituent, continues to gladden this battered old share tipster. After a commendably cautious time getting its act together, it is now expanding rapidly and emerging as one of the country's biggest and most successful franchise operations.

This week, it announced its most significant deal yet - the £2.5m acquisition of Ovenclean, embracing a spread of 167 franchises and a very impressive profits record. To fund the cash deal - £1.75m down and the rest later - Myhome raised £2.2m through a share placing at 35p. For an Ofex company, it has already achieved a very strong City following that is underlined by over-subscription of the cash call.

The portfolio recruited the shares last year at 15.5p. They are now around 40p. I feel they have further to go and have no plans to lock in profits. But I should emphasise that Myhome is still a relatively small, still largely unproven company. In my view, it has considerable potential and a good infrastructure and management. But, at this stage, the shares are not for the proverbial widows and orphans.

Yet it would, on projected profits, be foolish to regard the shares as pricey. With Ovenclean on board, they would seem to be selling at just more than 13 times this year's earnings and seven times next year's.

Myhome, which has already declared its desire to quit the fringe Ofex market and moving up to the Alternative Investment Market (AIM), has been developed by chief executive Russell O'Connell. He merged his own home cleaning business with a highly researched and computerised rival created by Unilever.

The food-to-soap behemoth abandoned its home-cleaning enterprise during one of those purges that seem to afflict the rich and powerful. Still it allowed O'Connell to inherit an expensive IT system which has provided the back-up for Myhome's advance.

For a time, the company concentrated on domestic cleaning. It now has more than 50 cleaning franchises and, through Nicenstripy, a gardening franchise spread acquired earlier this year, another 42 operatives. Surface Doctor, a bathroom and kitchen refurbishment and repair system, is the baby of the trio.

Recently launched, it is still finding its feet and has just two outlets. The three are enjoying month-on-month growth. With Ovenclean, the group's franchise spread is not far short of 300. The rollout started only 18 months ago.

The expansion will continue. More businesses will be acquired. The group, currently capitalised at around £11m, has made it clear it expects to log on other activities to its computer infrastructure. Another deal is likely in the coming months. O'Connell has his sights set on creating, in the next few years, a multi-franchise conglomerate embracing 10 activities. Electricians and plumbers may be next to enrol.

Certainly Ovenclean, with some 20,000 mainly domestic customers, seems a bargain. Bryan Goozee, who started the business some 14 years ago, is retiring but the family link is preserved with his son, Anthony, who is chief executive. Profits were not far short of £600,000 last year.

As its franchisees pay a regular fixed fee irrespective of trading performance, its income flow is more predictable than the other Myhome divisions, which contribute royalties based on trading. Researcher Equity Development believes Ovenclean will increase its franchise chain to around 300 in the next few years.

Clearly, opportunities for cross-selling the various services have been increased by the acquisition. The deal will also re-enforce Myhome's international aspirations; they already touch Australia and Eire. Spain is now in its orbit.

Hargreaves Services, another portfolio member, has also been in touch with shareholders. At near 390p, the shares are below my buying price. But the company, spreading over bulk haulage, waste handling and importing and producing coke, performed well last year and says it should meet stock market profit expectations - hovering around the £6.6m mark.

Chief executive Gordon Banham adds the group has made a "positive" start to its year with turnover, helped by new contracts, running substantially higher than a year ago.

The shares were floated at 243p in November; they have been as high as 451p. Hargreaves is clearly a well-run company. The trouble is that I mistimed the purchase, paying 417p. Still I remain confident the shares will, in the long run, justify inclusion in the portfolio.

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