Interactive Investor

Are clouds lifting for this FTSE 250 stock?

17th February 2022 15:08

Graeme Evans from interactive investor

There's no respite from energy market turmoil, but sentiment towards this mid-cap stock is improving.

A warning from Moneysupermarket (LSE:MONY) that it expects no revenues from energy switching in 2022 failed to spook investors today as the comparison site's shares rallied off multi-year lows.

High wholesale energy prices mean there have been no switchable tariffs available since October, cutting off an important source of revenue for the FTSE 250-listed company.

Today's full-year results showed sales from home services fell 34% to £68.1 million, with declining premiums and intensifying competitor activity in the insurance vertical also contributing to an 8% fall in overall revenues to £316.7 million.

The figure in the fourth quarter was 2% higher at £78.1 million, with a 45% jump in the money channel meaning a smaller-than-expected fall in 2021 earnings of 9% at 11.9p a share.

The stock has been trading at its lowest level since 2014, but lifted 5.6p to 192.6p after the 2021 beat. The recovery story has plenty of support in the City, with Jefferies highlighting a price target of 355p and Numis Securities noting the potential for 320p.

Their optimism reflects an improved outlook as Covid-19 pressures recede, particularly in travel after 2021 revenues fell 32% to £4.1 million as a result of reduced demand for holiday, car rental and travel insurance searches.

Car insurance premiums have also started to increase, with more significant rises in home insurance premiums. Assuming no energy revenues in 2022, chief executive Peter Duffy is expecting underlying earnings to return to 2020 levels of about £108 million.

He said: “In a tough year for some of our markets, we delivered well against our strategy. We are well placed for further recovery in our end markets and future growth.”

Duffy's confidence in prospects and good levels of cash conversion today allowed the company to declare an unchanged final dividend of 8.61p for payment on 12 May. The stock trades with a 6% dividend yield.

Broker Peel Hunt, which had previously assumed some revenues from energy switching in the second half of 2022, has retained its “buy” rating and 310p target price.

At last night's price of 188p, it notes that shares trade on 14 times what it hopes will turn out to be a trough for earnings.

Peel Hunt said: “The crisis in the energy market place is ongoing so our hoped-for H2 recovery was unsound. With no energy switching in the current year we reduce forecasts by 15% - not unexpected but still unwelcome.

“But Travel is improving as is the Money vertical and the current year should show growth in Insurance. If the energy market returns in FY23 so will investor appetite.”

UBS said guidance for 2022 earnings came in 10% short of City hopes, but the bank noted positives from an underlying gross margin improvement and said the energy issues should be well known. The bank has a price target of 320p.

Stifel added: “Moneysupermarket's products help customers save on essential services, which makes the business fairly counter-cyclical in our view.”

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