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GoCompare.com - Revenue growth grinds to a halt

Nicholas Hyett | 31 July 2018 | A A A
GoCompare.com - Revenue growth grinds to a halt

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

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Half year operating profits were 9.5% ahead of last year at £17.3m, or £21m once exceptional costs are removed. However, revenues remained unchanged at £75.8m.

The group has announced an interim dividend of 0.8p per share, up 14% on last year.

The shares fell 8.5% in early trading.

View the latest share price and how to deal

Our view

GoCompare's core business model is a simple one, and has been very successful of late. Allow consumers to compare products, and charge providers a fee when a product is purchased via the website.

Growth is driven by a steady increase in eyeballs on screens and improving conversion to purchase. Unfortunately the former of those two has let the side down recently - as a more focused approach to marketing has bumped up conversion but dented visitor numbers.

But a single quarter's bad numbers aren't the end of the world - especially if the more focussed approach can be expanded to reach a greater number of high conversion clients.

The process is boosting margins, and that's welcome. We're firm believers in the old stock market saying that 'sales are vanity but profits are sanity' and in the past we've been critical of the marketing expense associated with low value products like travel insurance.

The group's "strategic investment" programme is looking to expand outside the traditional insurance stronghold - specifically into household gas & electricity and consumer finance.

Utilities is an attractive segment for a number of reasons. Contracts are individually significant, increasing the amount GoCo can charge providers, and consumers are for ever being encouraged to switch by regulators.

The group's prodigious cash generation is funding the necessary investment. 'Saving as a Service', GoCo's automated switching service, is expected to launch later this year and the company's also completed two major acquisitions. Together they should provide the raw materials necessary to build an integrated 'money saving' offer, but it will take time.

We're prepared to give the group the benefit of the doubt for now. Strong cash generation and steady earnings growth means debt has been kept under control. The extra headroom has been used to fund purchases and pay dividends (with the group aiming to pay out 20-40% of profit after tax going forwards) - both of which are good news for shareholders.

Overall we rather like GoCompare. The comparison industry seems set to grow in the coming years, as more consumers move online to find the best bargain. However irritating Gio Compario may be, he has certainly put the group front of mind, and in a marketing led business that's key.

The shares currently trade on a price to earnings ratio of 15.3 times (versus 17.3 times for rival MoneySupermarket) with a prospective yield of 1.5%.

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Trading details

With revenues unchanged, profit growth has been driven by good cost control in the price comparison business - where trading profits rose 11.3% to £33.4m. That includes more efficient use of paid search and targeting profitable customers, with different broadcast strategies reducing distribution costs.

The focus on higher conversion customers has boosted average revenue per interaction 8.4% to £4.80, but has also seen overall interactions fall 12.9% to 14.9m. A downward trend in car insurance premiums has also reduced the urgency of switching, denting the number of visitors to the website.

The recently acquired rewards business, which includes myvounchercodes generated trading profits of £2.4m. The division has signed an agreement with News UK to run The Sun's voucher codes site.

GoCompare has continued to invest in new areas, including MortgageGym and the recent deal to buy leading UK energy switching and price comparison business Energylinx.

Net debt was £34.4m higher at the half year than six months earlier - largely because of acquisitions. Leverage increased from 1.5 times to 1.7 times.

Commenting on the results CEO Matthew Crummack said "The first six months of 2018 were marked by two strategically important acquisitions: MyVoucherCodes and Energylinx . . . The Group now consists of three highly complementary brands, ideally placed to deliver on our 'Savings as a Service' strategy that aims to make saving time and money as hassle-free as possible".

Find out more about GoCompare.com shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.