Each week, Any Brough, fund manager at Schroders, looks at a stock worth considering for your investment portfolio.
Following on from the article about Telecom Plus last month and the theme of saving money, my colleague Kunal suggested it was time to have a look at moneysupermarket.com.
The website makes most of its money from commission selling mortgages, credit cards, insurance and savings accounts.
With nearly 50% market share, it is by far the most popular price comparison website and leaves rivals such as gocompare.com and comparethemarket.com a long way behind.
But why is it so popular? A recent survey by opinion pollster YouGov showed that Moneysupermarket is the most trusted brand for money products. Its image is clean, serious and to the point. Contrast that with Gio Compario and Aleksandr the meerkat, the characters that front, respectively, those two rivals. They just don’t compare in price comparison land.
The site’s popularity means that when someone wants to buy insurance or look for a mortgage, it ends up being the first name that comes into their head and many people type it directly into their web browser or Google.
Within Google it naturally comes top for most money-related search terms without the company having to spend extra on advertising.
This means that the business is profitable relative to its rivals, which keep spending money on advertising and Google keywords to maintain their popularity.
Through an excellent new voucher code website, Moneysupermarket also aims to retain users for longer – something not tried by the others.
In recession-hit 2009, the business made profits of £36m on sales of just £137m. The site’s money segment (loans, mortgages, credit cards) was the weak area, but it is slowly recovering.
The shares trade at a reasonable prospective price-to-earnings ratio of 13 times, or just 12 if the £25m cash on the balance sheet is ignored. Alongside this is the prospect of improvements in the money segment as the economy recovers, which could present interesting prospects, and also a dividend yield of 5%. The company also pays special dividends – two in the past year, totalling £50m.
There is also significant growth potential in the money segment from more people using the web. For example, according to another YouGov survey, 65% of people use the web to get an insurance quote, yet only 30% use it to look for a new loan or credit card. As web penetration levels go up in non-insurance and more people use the web to compare financial products, the company is well placed to grow.
While not a low-risk investment, Moneysupermarket is a great way of playing a recovery in the UK and increased internet penetration at the same time – and you don’t have to look at a meerkat when you use it.
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