Moneysupermarket.com Group PLC (LSE:MONY, Financial) is a one-stop shop for personal finance – a popular U.K. price comparison website.
The pandemic has been tough for Moneysupermarket. While most consumer have spent more time at home, most of that extra time has been spent watching Netflix (NFLX, Financial) or making home repairs. Searching price comparison websites, it seems, has not been the top priority for the British. However, the recent 101 million-pound ($139.3 million) takeover of the Quidco cashback operation has given the company a boost and was warmly welcomed by investors.
Covid-19’s impact on the company has been apparent. The stock is down 10.3% in the last year. It seems Mr. Market has fallen out of love with Moneysupermarket.
Looking at the recent third-quarter earnings announcement, we can see why to some extent. Car and motor insurance sales decreased and while travel insurance is recovering, it’s still only 50% of pre-pandemic levels. The money segment managed to return to 2019 volumes, but the home services unit has been hit by the U.K. energy crisis. That’s because consumer switching in home energy providers has ground to a halt as many providers have gone out of business and the U.K. price cap is now in effect. You can’t really switch to improve your home energy bill now. The price cap will be in place until at least next year, so it’s difficult to see when exactly energy switching will even become an option again. Peter Duffy, the CEO, perhaps wisely, was unwilling to forecast when energy market conditions would improve.
The good news was that thanks to higher margins, the third-quarter gross profit was slightly up from a year ago and management expect full-year Ebitda profits to meet current market expectations of 96.5 million pounds.
The Quidco transaction was the focus though of the third-quarter update, giving Moneysupermarket a growth opportunity to present and give investors hope the company can aim again for its previous high of 417 pence it achieved in June 2019. The stock trades now for 218 pencs, so there’s a long way to go.
However, Quidco is the second-largest cashback business in the U.K. with 4,500 merchants and a million users, which should trigger new growth.
Data provider Statista says that 52% of U.K. consumers got cash back on purchases in 2018, a percentage that is probably higher now. Moneysupermarket believes it can get synergies with Quidco and make it more powerful via better marketing and making it more user-friendly.
This is broadening the strategy of Moneysupermarket. Quidco and the 2012 acquisition of Money Saving Expert means the group is going up the value chain, expanding on the largely commoditized price comparison offering and into more active advice. These add-on businesses are value-adding and higher margin. As the group is growing its business line, its huge database is expanding, which means it can develop more targeted, and thus more successful, marketing. In short, its consumer proposition is growing.
It seems investors are pessimistic about the energy market troubles and Moneysupermarket’s insurance offerings, but both markets are cyclical. The creative destruction in the energy market will be the genesis of new electricity service providers and high gas and electricity prices will not persist for too long. For the downturn in insurance offerings, the insurance cycle will turn sooner or later, and consumers will come back to price comparison websites to find better deals.
Moneysupermarket’s cheap valuation reflects the fact two of its main businesses are at cyclical lows, so for patient investors, we can simply buy and hold until business is strong again. Meanwhile, we get paid to wait with a 5.37% dividend yield in a company with a very strong Altman Z-score of 9.3 (so the dividend looks secure). With the stock trading close to its five-year low, it seems an excellent time to pick up some shares.
Duffy seems to have a good plan for what he wants to do with the group over the next several years, becoming a more broadly-based consumer digital services champion using big data to provide the best deals and advice.
It is hard to argue with the valuation, so an investment in the company comes down to a view on strategy and we can assess that better at the group’s next financial event, which will be the announcement of full-year 2021 results in February. This FTSE 250 stock goes on my watchlist.
