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GoCo Group - AutoSave sales soar as customers more than double

Nicholas Hyett, Equity Analyst | 23 October 2020 | A A A
GoCo Group - AutoSave sales soar as customers more than double

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GoCo reported revenue growth of 13% in the first nine months of the year, up from 8.9% at the half year stage, reaching £130.5m. That was driven by a 238% increase in revenues from the recently launched AutoSave proposition.

The company said that the business model remains "highly cash generative" and that "net debt reduced during the quarter".

The shares rose 5.2% in early trading.

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Our view

Price comparison is GoCo's engine room. It's a simple business, allowing consumers to compare products, and charging providers a fee when a product is purchased via the website.

Growth's driven by a steady increase in eyeballs on screens and improving conversion to purchase. Coronavirus initially led to a slight decline in quote volumes, although improved conversion has generally offset that headwind. However, attracting customers to the site has been a problem in the past.

The answer is expensive marketing campaigns. While recent product innovations, such as £250 excess insurance, are intended to increase customer retention large marketing budgets will always be a feature of the business.

The good news is that marketing aside price comparison is very cash generative. Once the site's up and running maintenance is modest. The cash generated is being poured into the "strategic investment" programme as GoCompare looks to expand outside its traditional insurance base.

The group dabbles in voucher codes, but the real focus is on automatic switching services, particularly in Utilities.

Utility contracts are high value, increasing the amount GoCo can charge providers, and consumers are forever being encouraged to switch by regulators. The recently launched weflip is GoCo's first in-house 'Saving as a Service' product and it's been bulked up with acquisitions. Management think the automated switching service has the potential to revolutionise the way we buy services - and if it's successful it will revolutionise GoCo as well.

The GoCompare website is very transactional - users log on to the website, buy a product and leave. They might come back next year or they might not. weflip gives GoCo an ongoing relationship with its customers, earning revenues over a longer period of time and reducing the need for constant marketing spend to keep customers coming back. That would make GoCo a lower risk, higher margin business.

It's proving popular with customers, with user numbers up by 148% year-on-year. However, a £2.2m operating loss at the half year shows that there's more work to be done.

We're prepared to give the group the benefit of the doubt for now. But we will be keeping half an eye on the balance sheet. Debt had been creeping up despite the strong cash generation. A lot of the cash has gone on acquisitions and a not insignificant dividend (with the group aiming to pay out 20-40% of profit after tax going forwards) - although both are sensible uses of cash from a shareholder's perspective.

GoCompare key facts

  • 12 month forward Price/Earnings ratio: 15.4
  • Average Price/Earnings ratio since listing: 13.8
  • Prospective dividend yield (next 12 months): 1.3%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Third Quarter Trading Update

Price Comparison sales rose 4% in the first nine months to £109.1m (half year -1%). That reflects improvements in the car insurance segment, where growth has been ahead of the market, thanks to higher customer retention and conversion. The £250 excess insurance proposition appears to be performing well, and a recent GoCompare TV campaign has improved brand awareness.

The recently launched AutoSave business saw sales rise 238% to £17.9m, with customer numbers up 148% to 597,000. The division added 115,000 customers in the last quarter.

Rewards sales fell 30% to £3.5m, reflecting the impact of the coronavirus outbreak on non-digital channels.

Find out more about GoCo group shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.