Is investing in Mony going to be a money-spinner?

A cost of living crisis should have been good news for price comparison websites, as consumers started shopping around for a better deal on their household bills. Yet shares in Mony Group, the owner of MoneySuperMarket and MoneySavingExpert, are still languishing at less than half their level five years ago.
Mony, which changed its name from Moneysupermarket Group this year, was the biggest internet company in London when it was listed in 2007. It can no longer claim that title, but the £1.1 billion business still has considerable sway, not least through its MoneySavingExpert consumer finance brand, with Martin Lewis as its frontman, as well as its core MoneySuperMarket price comparison website. It also owns TravelSuperMarket and Icelolly, the travel comparison sites, as well as Quidco, a cashback site.
Last year the group made £432 million in sales, about half of which came from its insurance division, followed by £100 million from its money business, £39 million from home services, £21 million from travel and £60 million from cashback.
It makes money by referring customers to thousands of providers’ websites, with most revenues derived from a fixed fee or a one-off commission fee when a customer completes a transaction via one of its platforms. Profits have been mostly in decline for the past five years, though. When the pandemic hit, fewer people were looking for deals on their car and travel insurance. Meanwhile, excess savings during lockdowns meant that there was weaker demand for loans and credit cards in the group’s money division. Then the number of households switching energy suppliers fell when the price cap kicked in and Mony has said it still does not expect to earn anything “material” from households switching suppliers this year.
Higher insurance premiums last year were a temporary boost, but since the regulator stepped in with tighter pricing regulation and the company told shareholders that the insurance market was beginning to stabilise back in February, the shares have dropped by a further 19 per cent, taking its five-year decline to 46 per cent.
Investors have been focused on these various bumps in recent trading, but behind the scenes Mony’s strategy to “retain and grow” has been progressing well. It has been focusing on its membership-based services, designed to encourage customer loyalty. For example, there were half a million people signed up to the MoneySuperMarket rewards club as of the end of June, compared with 300,000 in April. Early data suggests that members are four times more likely to buy a second product with MoneySuperMarket and are 20 per cent more likely to do so via its rewards club. The MoneySavingExpert app is also popular, with 14 million downloads and 443,000 average monthly users in the first half.
The group is also well-supported by a strong underlying business model. Like other price comparison websites, it is a highly profitable business, with gross margins consistently north of 60 per cent and operating profit margins of about 30 per cent. It has low levels of debt and the digital nature of the business means it is very capital-light, so cash conversion is strong, averaging 112 per cent over the past three years, according to an analysis by Shore Capital, the broker. For now, the dividend is well supported, too, with an earnings-per-share cover ratio of 1.2 times and a forward free cashflow yield of almost 9 per cent.
Shareholders have braced for a tough comparative period as the company enters the second half of the year and the insurance market softens. Yet the stock is already trading at a relatively low 12 times forward earnings, at a slight discount to its own five-year average of 15. Given that it has retained its strong fundamentals and is still home to some of the best-trusted personal finance brands, it looks worth weathering the storm.
Advice Buy
Why Slowing insurance market hurting appetite for shares, but long-term strategy is sound
There are only a handful of London-listed companies that have increased their dividend every year for more than half a century. The £407 million JP Morgan Claverhouse Investment Trustis one of them.
The trust, launched in 1963, aims to provide both capital and income growth by investing in British stocks. As of the end of July, 27 per cent of the portfolio was in the financial sector, with 13 per cent in energy and a similar level in consumer discretionary businesses. Shell was its largest holding, at 8.6 per cent of its assets, followed by AstraZeneca, at 6.4 per cent, and HSBC, at 6 per cent.
The trust is appealing from an income perspective, given that the shares yield 4.9 per cent and have a 51-year track record of dividend growth. That being said, performance from a total return perspective, which combines share price gains and reinvested dividends, has been mixed. The trust has outperformed its preferred benchmark index, the FTSE All-Share, in the past decade, notching a total return of 89 per cent versus 82 per cent. But in recent years it has lagged behind. It was hit hard in the first half of 2022 when its set-up for a cyclical recovery was derailed by Russia’s invasion of Ukraine. In the past three years it has delivered a return of 9 per cent, compared with 23 per cent by the index.
Potential investors should note that William Meadon, who has been the lead manager on the trust since 2012, left JP Morgan Asset Management this summer. His replacement Callum Abbot has helped to run the fund for the past six years.
The trust has an annual management fee of 0.45 per cent on net assets up to £400 million, lowering to 0.4 per cent thereafter. It also trades at a 5.8 per cent discount to its net asset value, just slightly above an average of 5.5 per cent among trusts that also specialise in British, dividend-paying stocks. For investors looking for a reliable income payer, JP Morgan Claverhouse could be a strong fit.
Advice Buy
Why Reliable income payer