Covid has been miserable for Moneysupermarket. While many of us have been sitting in front of computers, searching price comparison websites has not been the favourite pastime. However, yesterday’s £101 million takeover of the Quidco cashback operation gives the company new impetus that was warmly welcomed by the stock market.
In June last year Tempus advised avoiding the shares, as Covid’s impact on the company was becoming apparent. They were 324p then and, even after yesterday’s upturn, they are still more than 100p south of that. Only last month the broker Peel Hunt warned that the market had “fallen out of love with Moneysupermarket”.
Before the Quidco deal, the third-quarter announcement was set to be a drab affair. Car and motor insurance revenue shrank and while travel insurance recovered it was only half of earlier levels. The money division returned to 2019 volumes but the home services unit was blighted by the energy crisis, which virtually killed consumer switching as providers went bust and the price cap became the benchmark. That will not improve until next year and Peter Duffy, the chief executive, was unwilling to say how long investors would have to wait, even then.
Thanks to higher margins, the third-quarter gross profit was slightly higher than a year ago, leading Duffy to expect full-year ebitda profits to do no more than meet current market expectations of £96.5 million.
Quidco changed the tone, giving Moneysupermarket a story to tell and more hope for the share price than it has had for two years, when it hit 417p. The deal for the second largest cashback business in the UK with 4,500 merchants and a million users, should trigger new growth.
According to Statista, 52 per cent of UK consumers obtained cashback on purchases in 2018, a percentage that is almost certainly higher now. Duffy reckons he can squeeze more out of Quidco by making it slicker and easier to use.
The wider question is where he is taking Moneysupermarket. Quidco and the 2012 takeover of Money Saving Expert take the group beyond passive price comparison into more active advice, and it is clearly on the lookout for more add-ons. The group is growing closer to the big high street groups as they seek to tap into its huge database to develop more targeted, and therefore more efficient, marketing.
Malcolm Morgan, of Peel Hunt, said: “The Quidco deal extends the business and is a useful expansion of the consumer proposition in our opinion. Overall, after a torrid share price performance in recent months, there is good news today. However, for the shares to regain a fair valuation we believe far greater clarity will be required on the fallout of the energy market, and more consistent trading in insurance.”
The shares trade on a pricey 18 times expected 2021 earnings per share but Credit Suisse sees the multiple falling to 11.4 in two years. In such a cash-generative business the dividend looks secure, supporting a 6 per cent yield.
Although stock market rules limit what Duffy can say, he clearly has a plan for where he wants to take the group in the next few years, probably involving the occasional buy on the lines of Quidco, moving towards Moneysupermarket becoming a more broadly based consumer champion using up-to-the-minute analytics.
So investment now is an act of faith in that partially revealed vision — and his ability to deliver it. Nevertheless, it is hard to argue with the chorus of buy recommendations from the analysts.
Advice Buy
Why The shares have been depressed by the energy crisis, but that will pass and the group is well placed to move forward
McBride
It is never a good sign when a firm has to beg its biggest customers to pay higher prices to bail it out, especially when several of those customers are the supermarkets, which feed their negotiators on raw meat as soon as they can crawl.
But that is the grim tale from McBride, which claims to be the leading European maker of products for household and professional cleaning and hygiene. It is best known for Oven Pride cleaners and Surcare laundry detergent.
Last month Chris Smith, the chief executive, said he had seen an “exceptionally fast escalation in input costs” since early spring. Cardboard and ethylene were more than 50 per cent dearer than a year ago, driving up the cost of plastics, while surfactants (cleansing agents) and some solvents were over 300 per cent more expensive.
Yesterday Smith said that since then “global supply chains had continued to tighten. Raw material and packaging costs have moved faster and to a higher level than previously expected. In addition the shortage of haulage capacity and higher fuel costs have continued to substantially inflate distribution costs — again ahead of the board’s expectations — which show no sign of abating in the near term.”
As a result McBride has gone back to its business customers to seek a second round of substantial price increases across all divisions — hopefully, in the 15 to 20 per cent region. Good luck.
Meanwhile, in the six months to end-December, Smith expects a possible £10 million earnings loss and is pinning everything on a recovery in the new year, in the midst of what he calls “the unpredictability of the current global supply chain and ongoing uncertainty over input costs”. That doubtless includes the energy price hike. It is about as bloody a mess as shareholders could have feared and will not have made for a cheerful annual meeting yesterday. But the business is fundamentally sound and many of the current headaches will go, eventually. Numis expects a £4.4 million pre-tax loss for the year to June, recovering to a £13.3 million profit for the year after.
Advice Avoid for now
Why The fall in the shares may have further to go, but they could be a buy on recovery next year
