Interactive Investor

Moneysupermarket.com tipped to bounce back from sell-off

Down at a seven-month low, shares were dumped amid displeasure at these third-quarter numbers. 

17th October 2019 12:59

Graeme Evans from interactive investor

Down at a seven-month low, shares were dumped amid displeasure at these third-quarter numbers. 

Investors made a few comparisons of their own today after shares in Moneysupermarket.com (LSE:MONY) fell sharply at a time when GoCompare rival GoCo Group (LSE:GOCO) has been roaring ahead.

The 12% sell-off at Moneysupermarket followed a third-quarter trading update in which continued strong demand for energy switching was offset by underperformance in the money segment and subdued trading conditions in insurance.

While the overall result still keeps the company on track for full-year expectations, its shares unwound recent gains to stand where they were in the spring this year at around 340p.

Source: TradingView Past performance is not a guide to future performance

In contrast, shares in GoCo have surged 30% since the company announced on September 25 the faster-than-expected take-up of its AutoSave initiative, where it automatically switches customers on to the best deal.

With its brands Look After My Bills and weflip targeting these infrequent switchers, GoCo has already achieved its end-of-year goal of growing AutoSave customer numbers by at least 25%. It said this area had the potential to be transformative to group earnings by 2022.

Moneysupermarket has recently launched its own , which tells customers by email when there's a switching deal that may suit them.

Analysts at Macquarie said this increased emphasis on auto-switching indicated some traction in the overall market. However, they said other initiatives under the company's Reinvent strategy needed to start benefiting marketing margin, revenue per user and active users.

They added: "We believe the company needs to demonstrate progress into new strategic initiatives to drive further growth and share price increases."

Macquarie pointed out that Moneysupermarket shares have the potential to reach 400p, while counterparts at Stifel have a ‘buy’ recommendation and price target of 410p.

Even though the company is at the low point of the product cycle, Stifel forecasts earnings growth of between 7% and 8% for this and the following financial year. There's also a potential upside if recent evidence of firmer car insurance premiums prompts more switching.

A recent survey by Confused.com showed that average premiums edged up year-on-year in the last two quarters, having fallen over the previous seven periods.

Stifel said the current valuation for Moneysupermarket of 20.9x 2019 earnings looked unchallenging, particularly with the possibility of further cash returns next year. They noted the company was trading at a small discount to smaller rival GoCo, which is on 22.8x earnings.

Moneysupermarket revenues rose 4% to £100.9 million in its most recent quarter, despite the Money segment falling 5% to £20.6 million due to a lack of promotional activity in the financial sector, such as offers of current account switching bonuses.

Insurance revenues were up 3% to £49.9 million, compared with a 4% rise in the previous quarter, while the company also noted some volatility in its search rankings following changes to Google algorithms.

Energy switching remains strong after quarterly revenues in home services rose 21% to £17.7 million, albeit below the growth of 52% seen at the half-year stage after an increase in the Ofgem energy cap in January. 

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