Moneysupermarket shares rise as RBC initiates at 'outperform'

Moneysupermarket.com Group shares gained on Friday as RBC Capital Markets initiated the stock at an ‘outperform’ rating with a price target of 400p.

“Moneysupermarket offers the only pure way to get exposure to the structural growth opportunity in price-comparison websites,” RBC said.

“Based on what we believe are realistic assumptions, the market provides 75% revenue upside to 2021. A differentiated product offering with exposure to faster-growing verticals helps the company to stand out backed by earnings growth compound annual growth rate (CAGR) of 16% 2016-2021E.”

RBC also expects the price comparison website to deliver revenue CAGR of 10.4% in 2016 to 2021.

The broker said the group has a more diversified product offering compared to peers that are part of listed motor insurers. This should encourage site traffic in a traditionally competitive market, RBC said.

“The company generates more of its revenue from money products (24% versus 6% at Gocompare) and is the second-largest player in the Energy market. As a result, the company has a strong foothold in two of the market verticals that we expect to show fastest growth.”

RBC believes Moneysupermarket’s business model is highly cash generative and forecasts a free cash flow yield of 5.4% in 2017. The company offers a 2016 yield of 3.3% versus internet-focused peers with an average of 1.3% average.

“Despite this attraction, Moneysupermarket continues to trade at a discount to UK online aggregators on 22.0x 2016E earnings versus peers on 33.0x. We believe that year-to-date underperformance on concerns around the competitive environment and Brexit provides a decent entry opportunity.”

Shares rose 1.96% to 307.50p at 0918 BST.