Moneysupermarket brings back dividend growth

Moneysupermarket (MONY) continues to grow steadily with strong margins and good cash generation. In the six months to June, insurance and travel were the strongest performing divisions, while rising interest rates and volatile energy markets limited growth in the money and home services businesses.

Rising mortgage rates suppressed activity in the housing market. With fewer people looking to move or refinance the money division saw revenue drop 2 per cent to £52mn. Meanwhile, the volatile energy market meant prices only fell below the price cap in July. When all prices are at the capped level fewer people need to switch suppliers, so home services revenue dropped 1 per cent.

However, the squeeze on mortgages and energy prices was a tailwind to the insurance business, which is the largest division with 49 per cent of revenue. Households on tight budgets are looking to save money elsewhere and are hunting around for better deals, which helped push revenue up 23 per cent.

Moneysupermarket has managed to keep costs in check, with operating costs increasing by just 3 per cent, which boosted the operating margin from 22.7 per cent to 26 per cent. This enabled dividend growth to return, and management boosted the half-year dividend by 3 per cent.

Broker Numis expects earnings per share to rise to 16.6p in 2024, giving a price/earnings ratio of around 16.7. However, its capital-light model and strong cash generation is the main appeal of Moneysupermarket. Numis currently has it on a 2024 free cash flow yield of 5.7 per cent. With steady growth and strong margins, that cash looks good value. Buy

Last IC View: Buy, 228p, 16 Feb 2023