Price comparison business Moneysupermarket (MONY) was the biggest share price gainer on the FTSE All-Share index on Tuesday after announcing the acquisition of Quidco, the second largest consumer cashback services provider in the UK.
The £101 million deal values Quidco at 12.8-times trailing EBITDA (earnings before interest, tax, depreciation and amortisation) and will add £59.2 million of annual revenue and £7.9 million of EBITDA to Moneysupermarket, about 18% and 8% respectively to the buyer’s own financials.
Buying Quidco also has strategic rationale, at a stroke handing Moneysupermarket a sizable consumer cashback offering with over 4,500 retailers, which it can use as part of its rewards/savings propositions to new and existing customers.
‘In a consumer comparison/money services market that is now a constant battle to poach users and retain spending customers, the addition of extra rewards helps differentiate the offering,’ said Megabuyte analyst Indraneel Arampatta, who drew a contrast with Compare the Market’s movie tickets offer.
‘Cashback is now a clear winner in the rewards category,’ said Arampatta, ‘it helps that Quidco is growing and profitable, and will be earnings accretive next year.’
Today’s Quidco deal went down very well with investors who chased Moneysupermarket stock nearly 9% higher in early trading to 219.6p, and off 2021 lows of 199p.
That share price reaction looks more impressive given the weak trading update that came alongside the Quidco deal. Covering the quarter to 30 September, it showed revenue down 10% to £76.4 million with its energy switching business massively impacted by soaring wholesale gas prices. This led to a 46% slump in Home Services revenues to just £13.9 million.
‘The comparison site relies on people switching their insurance, banking or utilities provider for its revenue, and the current energy crisis means there are very few attractive deals for people looking to change their heating and power supplier,’ said AJ Bell investment director Russ Mould.
‘The failure of smaller operators has left people loath to move anyway.’
WIDELY SPREAD BUSINESS
‘This is a problem which isn’t going away for Moneysupermarket but the good news is it pretty heavily diversified across different sectors and there was a notable recovery in the travel insurance space after a heavily disrupted 2020.’
Mould flagged that there were signs of the ongoing cutthroat competition in the price comparison space which had a notable impact on Moneysupermarket’s car and home insurance business, but ‘deals on credit cards and other financial products seemed to be doing the trick for this part of the business with the net result that it was almost back to its pre-pandemic levels,’ he said.
‘The relatively modest-sized acquisition of cashback firm Quidco could have an outsized impact on Moneysupermarket,’ as appears to be the view of investors today. ‘Quidco adds a new string to the bow for the company and Moneysupermarket should be able to use its own considerable skills and expertise to accelerate growth.’