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GoCo dented by costly expansion

As the group expands into the automated savings market, the required marketing spend has weighed on earnings
GoCo dented by costly expansion

Fresh off rebranding, GoCo Group’s (GOCO) expansion beyond its core GoCompare price comparison business continued during the first half, but this weighed on earnings – adjusted operating profit plummeted by 40 per cent to £12.5m. This came on the back of an £8.1m investment in growing the group’s existing 'weflip' proposition and the acquisition of 'Look After My Bills', the latter an attempt to expand in the relatively unexplored automated switching market. 

IC TIP: Sell at 81.9p

Both revenue and profits remained stagnant in the larger price comparison division, as a downward trend in car insurance premiums meant fewer customers sought to switch – customer interactions fell by 12.2 per cent to 13.1m. But a 1.2 percentage point improvement in car insurance conversion and higher income per transaction pushed average revenue per interaction up by 8.1 per cent to £5.19. A more competitive market necessitated a higher marketing spend, particularly for paid search, nudging the cost of sales up by 5 per cent.

House broker Peel Hunt forecasts adjusted pre-tax profit of £32.7m and EPS of 6.1p for the full year, rising to £41.7m and 7.7p in 2020.

GOCO GROUP (GOCO)   
ORD PRICE:81.9pMARKET VALUE:£ 343m
TOUCH:81.2-81.9p12-MONTH HIGH:132pLOW: 61.4p
DIVIDEND YIELD:1.5%PE RATIO:17
NET ASSET VALUE:*NET DEBT:£69.9m
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201875.815.93.10.8
201976.07.61.50.4
% change--52-52-
Ex-div:12 Sep   
Payment:04 Oct   
*Negative shareholder equity