It’s an irony of the Moneysupermarket name that, other than cashbacks, it doesn’t tell its 14 million customers how to save money in a supermarket. It was launched on the back of mortgage comparison in the pre-internet 1980s, moving into travel, banking and insurance. The latter is now its backbone.
Consequently, the group has become crisis-led. Energy deals were the hot topic two years ago, before the government imposed a price cap that made comparison redundant. Last year it was car insurance, as premiums rose sharply.
Yet helping to put out fires is not a comfortable business model, so for the past three years Peter Duffy, the chief executive, has been concentrating on building relationships with customers and providers. It has bought Quidco, the cashback specialist, and Martin Lewis’s MoneySavingExpert and last year started SuperSaveClub, a loyalty scheme with rewards and free days out from London Zoo to a Canterbury ghost tour.
Providers hopefully are being locked in with tenancy, an advertising deal, a data service and switching services. The theory is that stickier users and suppliers will be inclined to spend more. And rather than trying to buy the likes of Trainline or Rightmove, obvious product extensions, Moneysupermarket wants to work with them behind the scenes. All this on a common technology platform that should improve the electronic plumbing.
That added up to 11 per cent growth in annual revenue to £432.1 million, leading to earnings before deductions 14 per cent higher at £131.9 million, but after-tax profit was only 4 per cent ahead at £72.3 million. The adjusted earnings per share was 12 per cent ahead at 16p, while basic earnings were up by only 6 per cent at 13.5p.
That last element could be significant, as it relates to a one-off amortisation charge for acquired intangibles totalling £10 million after a reassessment of their useful economic lives in the wake of a closer look at recent acquisitions such as Quidco. That casts doubt over other intangibles and goodwill, which at £260.3 million exceed total equity of £226 million. Of course, assets can be revalued, but this item is large enough to be concerning. Low capital requirements and high revenue give some comfort, but the 30.5 per cent gross profit margin leaves the danger of competitors emerging at some stage.
The stock market was less than impressed with Duffy’s 2024 outlook: similar trends to last year’s fourth quarter, insurance fees slowing down, energy switching revenue still minimal and pre-tax profit within analysts’ consensus forecasts of £134 million to £146 million.
It is hard to see how the company develops strategically, once the present tactic of squeezing more revenue from the existing base has worked its way through. Duffy says he has no thoughts of starting overseas operations, citing the different regulatory regimes in nearly every country, but MutuiOnline, an Italian financial services group, may disagree, as it is the biggest shareholder, with 8 per cent. If it were to attempt a coup, several others might pop up to compete for a great brand and what would be a trophy asset.
According to Barclays: “The stock could tread water in the near term until end-market momentum into the second half of 2024 gets a bit clearer. But, on a 12-month view, we see opportunity to rerate as evidence of share gains and improved execution comes through. The balance sheet is net cash at the end of 2024 on our estimates and we expect its utilisation to become a question into 2025.” Apart from distributing most of earnings as dividend, that could point to share buybacks.
Two years out, Shore Capital, the broker, sees revenue topping £500 million, taking earnings before deductions to £163.1 million. That would shrink the price-earnings ratio from 16.2 to 12.4 and would advance the dividend yield from 4.8 per cent to 5.2 per cent.
The shares had a good run last year until interim results were published in July, when this column rated them a “hold”, and since then they have been treading water. They may continue to do so until another financial panic sends their fans begging them for the best deals.
Advice Hold
Why In the absence of a fresh direction, momentum could slow this year
Kingfisher
Two profit warnings towards the end of last year, the first because of struggles in France and the second because of Britain’s economic slowdown, have left Kingfisher’s shares looking somewhat unloved. The market’s rejection may have gone too far, though.
Last week’s news of a technical recession in the second half of 2023 was followed quickly by the Office of National Statistics’ calculation that retail sales volumes had turned round from a downwardly revised fall of 3.3 per cent in December to a 3.4 per cent increase last month. These numbers must be treated with caution, but they suggest that many people were sidestepping Christmas in favour of January spending.
Kingfisher focuses on home improvement through chains including B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş, spread through Britain and eight European countries. While DIY should do well when money is tight, jobs around the house can be put off so in practice the company does better when people are moving house and want to make alterations. Citibank spies an upturn and says Kingfisher is “well-positioned to benefit from a recovery in the UK housing market” in 2024.
First, shareholders must brace themselves for the 2023 results next month, after those profit warnings. The company’s latest forecast is for £560 million pre-tax profit, £198 million below the figure in 2022. JP Morgan Cazenove thinks the actual figure may be as low as £484 million.
Thierry Garnier, the French-born chief executive, fell back on retailers’ favourite excuse, the weather. In this case, apparently it was warm enough to deter his fellow countrymen from buying insulation, plumbing and heating products. The weather in Spain was simply “unfavourable”.
Nevertheless, the share price signals cautious optimism. Even on Cazenove’s pessimistic prediction, the shares at 223p would sell on only 12 times earnings and yield a useful though precarious 5.5 per cent. And perhaps Garnier has kept a little extra profit in his back pocket.
Advice Buy
Why The bad news should be in the price
