Yahoo Finance Despite the dormant energy market, there is much to like in this stock’s results
The less-than-rapturous response received by the share price in Moneysupermarket.com after its last week’s full-year results adds to a frustratingly long list of slips, slides and stumbles in the list of stocks favourably viewed by this column (read on for another one). All that any investor can do during such a testing spell is stick to their preferred methods, disciplines and carefully measured circle of competence (as Warren Buffett once described it).
That seems the best plan in the case of Moneysupermarket.com, even if regular (or sceptical) readers could be forgiven for muttering about how this could just be a case of broken clock syndrome (as by failing to move at all, even they are right twice a day).
There is much to like in the FTSE 250 company’s results and indeed much that fits with this column’s initial thesis in August last year. Sales and profits both rose nicely in 2022, as revenues from its insurance, money and especially travel units all advanced smartly. Only home services went into retreat, and that was no surprise amid the effective closure of the market for switching energy providers, thanks to the failure of many and the temporary salve supplied by the Government’s energy price guarantee.
Better still, cash flow was excellent and copious enough to comfortably cover the £62m dividend (an unchanged 11.71p per share) and pay down some debt for good measure. Net interest cover is nearly 30 times and net debt is minimal so the foundations are sound. That dividend also equates to a yield of 5pc, which income seekers should find attractive.
The £1.2bn company also continued to invest in its customer proposition, and thus its competitive position, by means of capital investment and acquisition. Four purchases add to the range of services and technological expertise and Moneysupermarket.com is now deploying a cloud-based platform that can be easily reused across its business, to cut costs and improve use of data.
However, the market just yawned. Investors focused instead on the dormant energy market, which is unlikely to show signs of life until the Government feels able to scrap the price cap, and argued the unchanged dividend suggested a lack of confidence in the outlook.
There is a counter to such caution. Management is expressing faith in its ability to meet expectations for further sales and profits growth this year and it is easy to see why. Inflation is still far too high for comfort and price comparison services can offer real value to cash-strapped consumers, who may be looking to save money on their insurance, credit card deals, loans or broadband bills, and the early stages of this year are showing trends in insurance and money similar to those of late 2022.
This column warms to companies with a strong, well-tended competitive position, healthy cash flow, a sound balance sheet and a decent yield. Sticking to these disciplines means sticking with this stock, especially as we have a small capital gain on paper and a final dividend of 8.61p a share to pocket on May 11. One to stick with.
Questor says: hold
Ticker: MONY
Share price at close: 234p
Update: PZ Cussons
It feels like we have rather made a mess of gels and soaps specialist PZ Cussons, another one of this column’s (growing) list of companies whose latest results earlier this month are earning the market’s opprobrium rather than its favour.
This may be more our fault than the company’s, thanks to the 20-plus times prospective earnings multiple paid at the time of our first study in June 2021, but the drop in the operating margin in the Europe and Americas arm is a source of concern and our investment case is either not panning out at all, or doing so incredibly slowly.
Good news – in the form of higher margins in Africa and Asia – was smothered by that of a decline in developed markets. The former always bring challenges of their own (politically and economically in certain cases) and the latter may take time to recover, as consumers cut down on baths to save money and energy and potentially trade down through brands.
Paying too high a price for a company where emerging markets are a key driver can lead to trouble and for all of the power of PZ Cussons’ brands, such as Imperial Leather and Carex, and its solid balance sheet, a high-teens earnings multiple feels about as high as this stock can go right now. Time to pull the plug, alas.
Questor says: sell
Ticker: PZC
Share price at close: 190p
Russ Mould is investment director at AJ Bell, the stock broker.
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