Moneysupermarket.com upgraded to 'buy' from 'hold' by Canaccord

Moneysupermarket.com Group was upgraded to a ‘buy’ rating from ‘hold’ but had its target price cut to 325p from 352p on Monday by Canaccord Genuity ahead of the company’s trading update later in the week.

Canaccord said it expects the financial services price comparison website to confirm it is on track to reach full year 2016 forecasts in Thursday’s trading update.

The broker estimates a 7% increase in first half group revenue, driven by strong momentum in Money and Home Service. Margins, however, are likely to be held back by the previously-flagged step up in marketing spend, Canaccord said.

The Travel section, which represents 8% of group revenue, is expected to be lacklustre due to the impact from a weaker pound and softening consumer spending.

While the company’s shares have fallen 18% since Britain voted to leave the European Union on 23 June, Canaccord believes price comparison platforms “should be relatively recession resistant” as customers will want to use the website to save money in a downturn.

“It has some exposure to supply of credit products (around 18% of group revenues), which might be impacted by a recession,” said Canaccord’s Simon Davies.

“But much of this relates to balance transfers, and demand should remain resilient, as should insurance activity.”

He added: “Moneysupermarket has been significantly de-rated, and now trades on a 2017 price to earnings (PER) ratio of 15.6x (or 15.0x ex-cash) and enterprise value (EV)/EBITDA of 10.3x, backed by a dividend yield of 4.0% - and with £78m of projected 2017year end net cash, the risk to the dividend is upward (through a potential special divident).

“We nudge down our target price to reflect downgrades/relative valuations, cutting from 352p to 325p. But this offers potential 32% upside, putting the shares on a 20.0x ex-cash PER, EV/ EBITDA of 13.5x (vs UK digital media peers in 14x to 18x range) and yield of 3.0%.”

Shares climbed 0.36% to 248.20p at 1102 BST.