Moneysupermarket generates cash in uncertain conditions

It was a mixed bag for Moneysupermarket (MONY) in 2022. Intuitively you would think the cost of living crisis would push more people to a price comparison website. In some cases, this is true. Travel insurance revenue is up 20 per cent since 2019 and money services rose 37 per cent year on year.

However, home services revenue fell 42 per cent last year as the energy crisis closed the switching market. When prices are above the government tariff rate no one needs to look for new providers. Management doesn’t expect this situation to change for the foreseeable future.

Although money service revenue was up 37 per cent across the year, growth slipped to 10 per cent in the last quarter due to Liz Truss’s impact on gilt yields. Mortgage rates were so high in the last quarter that few customers had success finding cheaper alternatives. And prospects are uncertain. In recessions, consumers tend to borrow less as they lose confidence in their ability to pay it back.

The incorporation of less profitable cashback company Quidco lowered group margins slightly. However, cash profits still increased by 19 per cent and, as a capital-light business, operating cash flow increased 59 per cent to £104.4mn.

Broker Peel Hunt expects Moneysupermarket to benefit from the cost of living crisis as customers look for ways to reduce bills. It has forecast adjusted earnings per share (EPS) of 15p in 2023 giving a price/earnings (PE) ratio of 15.7, and this assumes the energy market is still closed this year.

It is a mixed bag, but this price looks affordable given the strong cash generation and if energy prices do come down faster than expected then home services will see a boost. Buy

Last IC View: Buy, 216p, 2 Jul 2022