Having Google try and encroach on your patch is not something a company would relish.
And while the US giant’s move into price comparison services has not yet had a material effect on Moneysupermarket.com, analysts at Numis still have a negative view of the outlook for the business.
Moving his recommendation from reduce to sell, Numis’ David McCann said:
Following further share price appreciation (predominantly re-rating) and now even ignoring our view of the Google threat, we believe Moneysupermarket is over-valued.
We believe a 20 times/19 times adjusted 2015/2016 PE is expensive: i) versus its own historical one year forward average (14.5 times), ii) versus forecast earnings per share growth (2014-2016 compound annual growth rate: 7.6% our estimate, 7.9% consensus), iii) versus online listed peers (trading at 0.94 times peer group PE multiple versus. 0.78 times average) and iv) versus recent transactions (Esure recently paid 9.7 times PE for the 50% of GoCompare it did not own).
We re-iterate our negative recommendation (downgrading from reduce to sell due to the price strength) and note that we would now have a negative recommendation at the current price, even if we thought there was no Google risk. Put simply, we think a 20 times PE is the wrong multiple for a company with these current growth prospects and qualities. We think it is even more over-valued if you believe Google will at some point prove to be a disruptive competitor in the industry.
He admitted that so far the Google threat had not had much effect:
Whilst we have been surprised (i.e. wrong) that Google’s entry into the market since 2012 has failed to have any material impact on the business so far, we still believe it represents a potentially material tail risk. We estimate that as much as 40% of Moneysupermarket’s EBITDA is derived from customers who come via Google.
Furthermore, a recent meeting we had with Google and recent press rumours of Google’s intention to expand its financial price comparison service into the US confirmed our view that Google remain committed to competing in the price comparison market. We think Google sees financial price comparison as a low regulation, low capital intensity, but high impact proxy for entry into the financial services market, with some technological synergies with their other businesses. We have clearly been wrong about the speed at which we thought Google could disrupt this market, but we still believe the threat of disruption remains real and not something that should be completely discounted whilst Google appears to remain committed.
Moneysupermarket is currently 6.4p or 2.4% lower at 257.9p.
