Comparison site and switching service Moneysupermarket.com Group (LSE: MONY) has enjoyed a barnstorming 2019, its share price rising 40% so far this year. Long-term investors have reasons to be cheerful as well, with the stock more than doubling their money over the past five years, rising 114%.
In the Money
But it had to slow at some point, and that moment is now. The stock was down 3% on publication of its group interim results for the six months to 30 June, despite a positive set of numbers with group revenue up 15% to £199.4, “driven by exceptional energy switching.”
Profit after tax rose 18% to £50.2m, while “strong” operating cash flows jumped 20% to £51.4m. In fact, the only negative figure I can find is a rise in net debt, with last year’s net cash position of £24.4m turning negative at £12.6m.
As Roland Head recently pointed out, management is investing its plentiful cashflows on next generation of services to boost automated switching and tighten customer relationships, and this could be money well spent. Given that the FTSE 250 stock now has a market-cap of more than £2bn, I can’t get too worried about it.
I can only assume the downbeat market response is because the group has to keep growing fast to justify today’s toppy valuation of 22 times forecast earning. CEO Mark Lewis is still confident of delivering market expectations for the year and hailed the success of the group’s Reinvent strategy. The interim dividend was increased 5%, reflecting a progressive policy which puts the forecast yield at 3.5%.
The group distributed £83.4m wealth of dividends during the period, including a £40m special divi announced in February, up from £40.7m last year. City earnings projections look positive at 6% and 8% for the next couple of years and, with cash-strapped Britons still keen on switching, the Moneysupermarket share price may continue to reap the rewards, especially if the Reinvent strategy bears further fruit.
Compare and contrast
It’s interesting to compare the Moneysupermarket stock with rival GoCompare.com Group (LSE: GOCO), a relative minnow with a market-cap of just £357m. The home of Gio Compario has been out of favour with investors and is down nearly a third over the past year. But lately, there’s been signs of life, with a 20% pick-up in the last six months.
Inevitably, it’s cheaper than Moneysupermarket, trading at 14.6 times forward earnings. However, earnings prospects look more volatile with a 25% drop forecast for 2019, followed by growth of 22% in 2020. The forecast dividend is less generous at 2.1%.
GOCO for it
Lower expectations could work in favour of the GoCompare share price, offering it more scope for uplift. Last year’s operating profit margins of 24.7% were strong, while its return on capital employed was a thumping 105%. It’s also looking to drive customer numbers with its ‘weflip’ regular energy switching service.
Investors have woken up to the opportunity, but there could be further growth to come. Do you favour Moneysupermarket’s momentum, or GoCompare’s recovery potential? It’s a tough comparison, but I’d buy either rather than leave my money in a Cash ISA paying 1% or less.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.