Cube Midcap Report (18 July 2019) – MONY

Cube Midcap Report (18 July 2019) – MONY

Good morning! Our Midcap Report is back today with a short look at results from Moneysupermarket.com.


MoneySupermarket.com (MONY)

  • Share price: 390p (-3%)
  • Market cap: £2,090 million

Interim results

Firstly, let’s note that full-year guidance is unchanged. The forecasts in the market are for EPS of 18.4p this year, rising to 20p next year.

This puts MoneySupermarket on a big valuation premium in relation to smaller rival Goco (GOCO), in which I have a long position. Goco is trading at only around 13x forward earnings, while MoneySupermarket is at a lofty rating of 21x!

There is a big gap in the traffic at their primary URLs: Moneysupermarket.com is ranked #13,417 globally by Alexa, while Gocompare.com is only ranked at 24,655.

Anyway, let’s get back to these results. Key points:

  • revenue +15% to £199 million
  • operating profit +18% to £61 million (note the very high operating margin!)
  • healthy operating cash flow of £51 million.

The core Insurance segment was a little flatter than the others, showing revenue growth of just 3% over the six-month period. Energy switching (“Home Services“) picked up the slack, helped by the energy price cap.

The net result is that revenue from core services was up by 10%. Excluding the effect of an acquisition (contained within “Other Revenue“), organic growth was 8%.

Strategic Thinking

Price comparison sites have built some wonderfully profitable online assets, but have reached a point where growth is not so easy. As such, their focus now is on fine-tuning their propositions and reinventing themselves.

This is the context for Moneysupermarket’s “Reinvent” strategy. This strategy has some specific objectives, including to:

  • personalise their services using individual credit score analysis
  • bring price comparison products and services to other websites. The acquisition of B2B company Decision Tech is part of this strategy.
  • enter the mortgage market with remortgage comparison services.

Key performance indicators

This table says to me that average savings per customer are down, even though revenue per active customer is up. Customers might not be too happy if they saw that, but it’s not necessarily MoneySupermarket’s fault. Perhaps the various consumer markets are becoming a little bit more efficient, reducing the scope for very large customer savings?

We can also note the slight reduction in marketing margin. The company mentions the impact of mobile search having an impact on margins – mobile advertising is more expensive than desktop advertising.

My view

I’m a fan of this company. Cash generation is excellent – in this latest H1 period, net cash from operations was £51.4 million, offset by just £10 million in investing outflows (of which only £7.8 million was capex and capitalised development spending).

It has a good track record of rewarding shareholders, with £83 million spent on dividends in H1 (including a special dividend).

I would definitely be interested in buying this at the right price. For now, I remain content with its smaller and much cheaper rival.

 


 

This report was shorter than usual, due to time constraints. We’ll be back again with more coverage on Thursday 25th July, when we are expecting lots of exciting news – see you then!

All the best

Graham

 

(Disclosure: long GOCO.)

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