There are dark times ahead for consumers but that could work out well for this stock

·4 min read
There are dark times ahead for consumers but that could work out well for this stock
There are dark times ahead for consumers but that could work out well for this stock

A jump in the share price in the wake of last month’s interim results means that Moneysupermarket.com’s stock is not quite as cheap as it once was but it still appears to offer decent value, especially as an earnings recovery story seems to be gathering momentum.

Price comparison websites have had a couple of tough years (but then in many ways haven’t we all?). The pandemic prompted a drop in demand for car insurance. Then came the Financial Conduct Authority’s new regime on general insurance “price walking”.

Then consumers were willing but unable to switch energy providers owing to a fall in the number of players wanting to offer a quote and take on new business. As a result, annual pre‑tax profits slid from £116m in 2019 to £70m in 2021.

The chaos in the energy market could persist and that remains a key risk for the stock. Consumers cutting back on travel thanks to lost bags, cancelled flights, a weak pound or an economic downturn are another potential threat.

But, equally, hard times mean that price comparison sites can offer real value to cash‑strapped consumers, who may be looking to save money on their insurance, credit cards, loans or broadband. The first‑half results offer clear signs of an uptick in the consumer finance and travel markets as people shop around for the best deals and cut costs where they can, even if the energy and insurance arenas were still relatively quiet owing to the lack of switching.

First‑half profits easily exceeded analysts’ expectations and there could be more to come. The longer the cost of living crisis goes on, the more value the company can be to its users, as the acquisition of MoneySavingExpert a decade ago continues to bring benefits, while another purchase, Quidco, further broadens its offering with cashback.

Analysts’ forecasts for the year could look conservative if the first half’s momentum is maintained. Meanwhile the 5.4pc forecast yield, based on an unchanged 11.71p per share payout, offers some protection, as should a balance sheet that has very little debt.

Moneysupermarket.com could be a money spinner.

Questor says: buy

Ticker: MONY

Share price at close: 217p

Update: Essentra

The sale by support services specialist Essentra of its packaging business is yet to spark an upward move in the shares and this leaves us sitting on a paper loss relative to our tip in December last year and a bit stuck. We must now clearly wait for the disposal of the filters unit, which is the next step in the FTSE 250 company’s plan to establish itself as a pure‑play components company.

Essentra will pocket £312m from the packaging disposal when it completes in the fourth quarter of this year. The money will be used to top up the pension fund and reduce borrowing. Lower liabilities mean less risk and less risk can mean a higher valuation relative to earnings.

On this occasion, the shares are still sliding. That may be due to uncertainty over who exactly wants to buy the cigarette filters business and what they would be prepared to pay for it, given the ongoing trend decline in global tobacco volumes.

The likeliest candidates are the large tobacco firms themselves, especially as they are still generating plenty of cash and reducing their debt piles quite quickly.

A successful sale could therefore be the key to getting Essentra’s share price going. The components business has an operating margin in the high teens, filters in the high single digits and packaging in the low single digits. A pure‑play components firm should therefore command a higher valuation than the current conglomerate structure.

On the assumption that the packaging sale is finalised, Essentra currently trades on just 12 times forecast earnings for 2023. Rivals RS Group (Electrocomponents as was) and Diploma trade on around 17 times and 30 times respectively, so there is still scope for an upward revaluation of Essentra’s shares.

There is still value waiting to be unlocked here. Hold.

Questor says: hold

Ticker: ESNT

Share price at close: 249p

Russ Mould is investment director at AJ Bell, the stockbroker

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