While the share prices of many UK-listed companies have now surpassed their pre-Covid levels, others are still lagging. One example is FTSE 250 member Moneysupermarket.com (LSE: MONY). At yesterday’s close, its valuation languished roughly 40% below where it stood in February 2020.
As someone who has tried to take advantage of this weakness by sporadically snapping up the shares, it’s only natural I’d take an interest in today’s trading update from the company. So, have I bagged myself a bargain or is this MONY nothing more than a value trap? Despite a full recovery being some way off, I still reckon it’s the former.
Tough energy market
Sure, times are still tough at Moneysupermarket. Today, the company announced that the £76.4m in total revenue achieved over the three months to the end of September was 10% below that achieved over the same period in 2020.
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The company’s Home Services arm was the biggest detractor. Revenue from this part of the mid-cap plunged 46% to £13.9m as wholesale energy prices spiked and providers withdrew tariffs. Given that Moneysupermarket’s business plan rests on people looking to save money by switching supplier, this was never going to be good news.
Ominously, MONY said today that conditions in this market were unlikely to improve for the rest of 2020. Next year could also be bleak, according to analysts. To rub salt in the wound, its Insurance business faced headwinds as markets for home and car policies “softened“.
Signs of recovery?
This is not to say there weren’t a few chinks of light. The firm’s Money division saw a 58% jump in business, bringing in £19.7m. As the FTSE 250 member highlighted, this was close to pre-pandemic levels. MONY’s Travel arm — a huge casualty of the pandemic — also registered a 29% boost in revenue to £1.5m.
In addition, management said that full-year EBITDA (earnings before interest, tax, depreciation and amortisation) would match analyst projections due to “strong gross margin performance“.
Cheap FTSE 250 stock
MONY shares were trading on 17 times forecast earnings at yesterday’s close. That might not seem screamingly cheap considering the multiple headwinds it faces. However, let’s look at what I’d be getting:
- A solid, very recognisable brand with exposure to multiple markets, giving some earnings diversification.
- Consistently high margins and returns on capital employed — metrics that tend to be associated with high-quality companies.
- A dividend yield of 5.4% based on analyst estimates, although admittedly, profits barely cover this payout.
- A strong balance sheet, at least relative to certain other stocks in the FTSE 250.
It seems some in the market now agree. Despite today’s so-so numbers, Moneysupermarket.com stock is currently in heavy demand. At the time of writing, the share price is up over 8% at 220p+ a pop.
News that it would be acquiring the UK’s second-largest cashback site Quidco has no doubt helped. Already profitable and serving roughly 1 million users, the latter is expected to be earnings accretive next year. As deals go, this one looks highly appropriate to me and may even help speed up MONY’s recovery.
Contrarian pick
For investors with long time horizons such as myself, I reckon Moneysupermarket remains a sound buy. Having been hated for so long, the margin of safety now appears very attractive, even if the share price may take time to recapture its mojo.
I’d be happy to add to my position as things stand.
