MoneySupermarket shares fall despite rising profits as margins are squeezed
MoneySuperMarket shares fell more than 6 per cent today despite growing revenues from people comparing insurance and credit cards helped it lift group profits last year.
The website said its insurance arm saw ‘particularly good’ growth after a poor end to 2015, and so did its home services business, mostly thanks to customers comparing credit card deals, current accounts and utility providers.
Revenues rose 12 per cent to £316.4million last year from £287.7million in 2015 and profits rose by 16 per cent to £73.5million.
Upbeat headline: But MoneySupermarket said current trading was lower than last year
But despite the upbeat headline results, an increase in marketing spend and cashback offers squeezed the group’s gross margins, which fell to 75 per cent from 80 per cent in 2015.
MoneySupermarket also warned that revenues in the first months of this year were behind last year’s as savers lose interest in switching accounts since all banks keep cutting the interest they pay.
‘Low interest rates continued to weaken savings and current account switching and Energy is trading lower, as we have not yet run a collective switch. Consequently, Group revenues are currently behind last year’, said chief executive Peter Plumb.
However, he said the group was ‘confident’ and maintained expectations for the year as insurance revenues and its core money business, which includes credit cards and loans, saw strong growth in the first two months of the year.
Analysts at Liberum said there were no surprises in the headline numbers, but investors were concerned with the squeeze in margins.
‘Our concern with MONY has always been that revenue growth is linked to marketing spend and therefore margins could come under pressure going forward as competition in the PCW space intensifies,’ they said.
‘These results have realised our concerns, increased marketing spend drove the majority of the 520bps decline in gross margins to 74.8 per cent.’
The group also announced a new share buyback programme of £40million.
Neil Wilson, analyst at ETX Capita, said the margins decline was pretty bad and added: ‘Stock had rallied about 100p since last July so think investors were already pricing in some very good numbers and there is just enough in the release to make bulls skittish and bears happy.’
Shares in MoneySupermarket fell by 6.2 per cent, or 21.95p, to 329.05p.
MoneySupermarket final results come a day after it was revealed that motorists will face big hikes in car insurance due to a technical change related to personal injury payments.
The discount rate used to calculate how much compensation is paid in severe personal injury claims is to be lowered from 2.5 per cent to minus 0.75 per cent.
This practically means far higher payouts for victims and hence higher cost for their insurers, which will rise premiums to protect profits.
MoneySupermarket is, in theory, could benefit from this as a hike in premiums will likely lead more people to use its comparison tools to find a better deal.