Last month's decision by comparison website group MoneySupermarket.com to spend £87m buying MoneySavingExpert (MSE) from Martin Lewis looks smart. The deal should boost higher margin direct-to-site traffic and managers hope that it will help position the group as the place that consumers increasingly turn to for finance advice and finance-related products.
But MoneySupermarket still faces challenges. In particular, the group's trading update in April revealed that revenue from the travel business fell 11 per cent in the first quarter, with travel-related visitor volumes having fallen 11 per cent as well, as hard-pressed consumers think twice before splashing out on holidays. The financial services business, which generates 86 per cent of group revenues, is looking in better shape; first quarter revenues from the Money operation, for example, grew 22 per cent year-on-year on visitor volumes that had risen 20 per cent. First-quarter insurance revenues rose 13 per cent, with visitor volumes having jumped 9 per cent. Moreover, the group's second quarter relative revenue and profitability were reported as being ahead of first quarter run rates.
Peel Hunt says...
Buy. The MSE acquisition looks like a good deal for shareholders and fits with the group's strategy of developing an everyday brand that consumers choose to turn to. Moreover, for a cash-rich company, and given the deal's scale and structure, the move should be accretive in earnings terms. It also has defensive merits in the face of the uncertainty generated by Google's plans in this market. We maintain our one-year prospective enterprise value to cash profits multiple of 8.4 times - which drives the price target to 130p from 120p - and we have moved our recommendation from to buy from hold. Expect full-year pre-tax profit of £54.9m, with EPS of 7.7p.
N+1 Brewin says...
Buy. The proposed acquisition of MSE looks like an excellent fit and Martin Lewis has developed a strong, independent and trusted brand. The deal also has clear financial attractions - as highlighted by the 19-21 per cent upgrades to our forecasts for 2013 and 2014. We upgrade our price target from 140p to 150p, too, which equates to a PE ratio of about 16 times based on our 2013 earnings forecast of 9.4p - that's not overly demanding given the structural growth opportunity that's available. We also note the 5.4 per cent prospective dividend, using our 2013 forecast payout, and the potential for special dividends in the future. Expect full-year EPS of 7.9p.
