Report-ServiceMaster Global Holdings Inc. (SERV) & Frontdoor Inc. (FTDR) spin set for October 1st.
On October 1st, 2018, ServiceMaster Global Holdings Inc. (SERV) is set to complete the spin-off of ~80.1% stake in American Home Shield (AHS) Business into a separate public company, Frontdoor Inc. (FTDR). The parent will retain the Terminex (TMX) and Franchise Services Group (FSG) businesses as well as 19.9% stake in FTDR. The spin-off is anticipated to be tax-fee and was announced on July 26th, 2017. The spin-off makes sense given the diverging growth profiles of the two businesses. AHS is generally faster-growing compared to TMX and FSG.
SERV (ex FTDR) is primarily a play on the turnaround at TMX (accounting for more than 85% of total sales) which, in our view, is gaining momentum. We see tangible progress on building TMX's commercial capabilities. The mix shift towards commercial pest control market should support margin expansion and free cash flow. The fragmented nature of the pest control market in the US presents an attrative opportunity fo M&A. Going forward, we expect SERV to focus on smaller tuck-in deals that bring service capabilities. We remain confident on TMX's transfomation and believe SERV (ex-FDR) is undervalued.
FTDR is the leading player in the home service plan segment, with ~46% market share. The high annual recurring customer revenue (~66% as of 1H18) ensures predictability and stability in the business. We remain bullish on the outlook for AHS revenue growth, expecting to continue to deliver 8-10% organic performance. The confidence in the outlook comes from the under-penetration of the market opportunity (only ~4% of owner-occupied households have a warranty).
Of the two, we prefer FTD owing to more upside potential. In our view, both SERV (ex FTDR) and FDR are undervalued.
ServiceMaster Global Holdings is a holding company. Through its subsidiaries, the company provides services to residential and commercial customers in the termite, pest control, cleaning and restoration markets, operating through a network of company-owned locations and franchise and license agreements. The company's portfolio of brands includes Terminix (residential termite and pest control), Terminix Commercial (commercial termite and pest control), Copesan (commercial national accounts pest management), ServiceMaster Restore (restoration), ServiceMaster Clean (commercial cleaning), Merry Maids (residential cleaning), Furniture Medic (cabinet and furniture repair) and AmeriSpec (home inspections).
WhiteSand Research, LLC is a minority-owned company offering research solutions to the financial industry, including institutional investors, hedge funds, and investment firms. Founded in 2006 as a boutique research group, we focus on proprietary research reports on publicly-traded companies facing event-driven catalysts, including mergers and acquisitions, corporate buyback situations, turnarounds, spin-offs, post-bankruptcies and capital restructurings.
Producing quality, in-depth, and unbiased research to help our client's shape their investment processes has been the cornerstone of our company's success. WhiteSand Research employs a value-oriented, event-driven investment strategy that seeks to capitalize on the most inefficient and attractive investment opportunities.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.