Shares in price comparison website Go Compare (LSE: GOCO) climbed almost 6% in early trading this morning, building on the 50% rise already seen since the Newport-based business arrived on the market last November. Based on today’s update, I can see demand for the £430m cap’s stock growing even stronger over the remainder of 2017.
Revenue in the six months to the end of June came in at “approximately £75.8m“, representing a 4% increase over the same period in 2016.
Thanks largely to improvements in marketing margins, adjusted operating profit over H1 is now expected to be in the region of £17.5m — a cracking 22% jump on that achieved in the last year.
As a result of strong cash generation, Go Compare has significantly reduced the amount of debt on its books. Now standing at 1.5 times EBITDA, this is far below the 2.8 times seen when it de-merged from insurer Esure last year.
Beyond these positive numbers, the company also highlighted an agreement with Haymarket Media Group to expand its targeted comparison services and the purchase of a minority stake in “digital mortgage robo-adviser” Mortgage Gym. The latter’s new platform is scheduled to launch this September.
In addition to praising his new executive team for delivering “significant improvements in speed and capacity” over the half year period, CEO Matthew Crummack reflected that Go Compare was “well–positioned” for the rest of 2017 and that its board was confident on the full-year outlook.
Based on today’s price of 108p, shares in Go Compare trade on a forecast price-to-earnings (P/E) ratio of 18. While not screamingly cheap, predicted earnings per share growth of 56% in 2017 does mean that the company also boasts a price-to-earnings growth (PEG) ratio of just 0.9. As a rough rule of thumb, anything under one tends to be indicative of good value.
What’s more, the relatively low amount of capital expenditure required to keep the company moving forward increases the likelihood of Go Compare returning a decent amount of cash to shareholders over time. Although this year’s expected 1.8% yield may not be anything to shout about, the total payout is predicted to rise almost 22% in 2018.
10-bagger
Of course, Go Compare isn’t the only successful price comparison company out there. Indeed, the progress of listed rival Moneysupermarket.com (LSE: MONY) provides evidence of just how profitable buying slices of these asset-light, cash-generative businesses can be for investors.
In the dark days of the financial crisis eight years ago, stock in Moneysupermarket dipped as low as 34p. Today — thanks to canny marketing, sound financial management and a history of generating of generating consistently high returns on capital — the very same shares change hands for 354p.
Like Go Compare, Moneysupermarket is forecast to put in a stellar performance over 2017 with expected earnings per share growth of around 24% leaving its shares on a valuation of 21 times earnings. While not excessive, this is noticeably more than that of its main competitor. At 2.2, Moneysupermarket’s PEG ratio is also far higher than its peer.
Bottom line?
With motor insurance premiums reaching record highs and drivers more motivated than ever to seek out the best deal possible, I think either company is worthy of investment at the current time. Given its smaller market cap and better growth prospects, however, I believe Go Compare may help investors realise financial independence sooner.
