Shares in Moneysupermarket.com Group (LSE: MONY) slumped in February when the company predicted a pause in its recently impressive earnings growth.
A 4% rise in revenue which gave a 7% boost to earnings per share was a little behind forecasts, but what scared investors away was the revelation that “adjusted EBITDA for 2018 is expected to be broadly flat before growth resumes from 2019 onwards.“
Moneysupermarket shares are down 20% so far in 2018, though we have seen a bit of an uptick over the past month. Does this mean the earlier promise for long-term growth is falling away, or is it just the typical pause that happens when early growth spurts start to slow?
I go for the latter myself, and I think we’re looking at something relatively rare in a growth stock — one that was quick to turn its growth into decent dividends. Yields in the 3%-4% range are pretty respectable at this stage, especially as the annual cash payment was boosted by more than 40% between 2013 and 2017.
Acquisition
The market reacted coolly Thursday, when the company told us it “has agreed to acquire Decision Technologies Limited (‘Decision Tech’), a leading home communications and mobile phone comparison business, for £40m.“
Decision Tech has its own consumer comparison offerings, including broadbandchoices.co.uk, but it also provides comparison tools for communications services as used by Moneysavingexpert.com among others. Moneysupermarket reckons that Decision Tech “has one of the most advanced and scalable B2B comparison offerings in the UK.“
The share price barely moved as a result, but I see this as a good move. And I see the Moneysupermarket.com share price weakness as a buying opportunity.
Retail bargain
I’ve been looking at another falling stock lately, which I’m also thinking could make an attractive dividend target for this year’s ISA allowance.
It’s the unloved Halfords (LSE: HFD), in the even-less-loved retail sector. The Halfords share price has been erratic as its EPS has bobbed up and down over the past few years, and a few false starts have left it pretty much flat overall over the past five years.
But the company has kept its dividends rising progressively, and as the share price has been stagnating so has the yield been growing. Last year provided an attractive 4.9%, and analysts have 5.5% indicated for the current year, rising to 6% by 2020.
Dependable yield?
That’s very tempting if it really is sustainable, and I don’t see any good reason to think it isn’t. Full-year results are not due until 22 May, but January’s third-quarter update looked good. We saw a 3.2% rise in revenue on the quarter, with year-to-date revenue up 3.6%. Like-for-like figures are more indicative of the underlying business, and those looked healthy too — quarterly revenue up 2.7%, and 1.9% year to date.
With the retail sector being hit by the growth of online selling, it’s reassuring to see Halfords enjoying a 13% growth in online sales. Interestingly, more than 80% of Halfords.com orders were collected in-store, reinforcing my belief that the omnichannel model is very much alive and well.
Dividend cover is a little weaker than it has been, but looking back to interim results released November, I see no cause for concern. Net debt stood at £84.8m, but that represented only 0.8 times underlying EBITDA, and doesn’t look at all stretching to me.
