Could Moneysupermarket (LON:MONY) shares be a good way to play this trend? I think so. Here’s why. Right now, the UK is in the midst of a cost-of-living crisis driven by inflation and high-interest rates. As a result, many Britons are looking to save money by slashing their bills.
Moneysupermarket helps consumers save money
Moneysupermarket’s business model is certainly well suited to the current economic environment.
Moneysupermarket operates one of the largest and most well-known price comparison websites in the UK, moneysupermarket.com (it also owns a few other popular websites such as moneysavingexpert.com, travelsupermarket.com, and quidco.com). Its mission is to help consumers save money.
Through its websites, consumers can compare deals on insurance, banking and savings products, electricity and gas, broadband, and more.
When consumers purchase a product through its platform, it takes a small slice of the transaction.
14% revenue growth for Q3
A Q3 trading update from Moneysupermarket posted today showed that the FTSE 250 company has a fair bit of momentum right now.
For the three months ended 30 September, revenue was up 14% year on year to £115.6 million. The highlight of the quarter was the company’s insurance segment, which saw revenues jump 38% as consumers moved to switch providers.
On the back of this performance, the company said that it is confident that its full-year results will be in line with market expectations (the consensus revenue forecast for 2023 is £419 million versus £388 million last year).
Strong financials
Looking beyond the trading update, there’s a lot to like about this company from an investment perspective.
For a start, it’s very profitable. Over the last five years, return on capital has averaged 37%. Companies that consistently generate a high return on capital tend to be good investments over the long run.
Secondly, it pays a decent dividend. At present, City analysts expect a payout of 12.2p per share for 2023. At today’s share price, that equates to a dividend yield of around 5%.
Finally, the valuation is very reasonable. Right now, the company has a forward-looking price-to-earnings (P/E) ratio of around 15.7, which is not particularly high given the company’s growth rate and level of profitability.
I’ll point out that I’m not the only one who sees appeal in the FTSE 250 stock. Another fan of the company is Steve Clayton, Head of Equity Funds at Hargreaves Lansdown.
“We hold Moneysupermarket.com in our HL Select UK Income Shares fund because it is a hugely cash-generative business with a simple business model and great dividend-paying potential. Financial services firms are always looking for new customers, which Moneysupermarket.com delivers, earning a small fee for each one they introduce,” he wrote in a research note today.
Risks
There are a few risks to be aware of here, however.
One is competition. Moneysupermarket operates in a very competitive industry, and it has a lot of rivals including the likes of Go Compare, Compare the Market, and of course Good Money Guide. Looking ahead, competitors could steal market share. It’s worth noting here that Amazon has been making moves in the price comparison space recently.
Another risk is market dynamics. Sometimes, consumers in certain segments can be a bit static. For example, recently the company has seen no material switching in energy. As a result, its energy-related revenues have not increased.
Overall, however, I think there’s a lot to like about this stock. In the current economic environment, I see it as a smart buy.
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
Before establishing himself as a writer, Edward earned a Commerce degree from the prestigious University of Melbourne. Complementing his academic background, he holds the esteemed Investment Management Certificate (IMC) and is a proud holder of the Chartered Financial Analyst (CFA) qualification.
Widely recognized as a sought-after investment expert, Edward’s insightful perspectives and analyses have been featured on sites such as BlackRock, Credit Suisse, WisdomTree, Motley Fool, eToro, and CMC Markets, among others.
