Gamble of the week: A competitive comparison site

Saving money is a good thing to do and, for many households, it’s a necessity. The internet and the growth of price-comparison sites has made it a lot easier for people to find a better deal on their car insurance, credit card or electricity bill.

But what about making money from investing in one of the companies that provides all these price comparisons? Given that every second or third advertisement on TV seems to come from one of them, it’s easy to think that this market is too competitive to be a good long-term investment.

Anyone who bought shares in the flotation of Moneysupermarket.com (LSE: MONY) at 170p in 2007 is probably not smiling very much now, as the share price is only 15p higher than it was then. That said, profits have been growing steadily and the shares no longer look as pricey as they once did.

For me, the key issue is whether Moneysupermarket.com has any form of competitive advantage that will stop existing or new players eating its lunch. I think it has.

While it still gets the bulk of its income from fees paid by insurance companies, where competition is high, it is doing a good job here. According to some sources, it is offering better prices than many of its competitors for car insurance – and this should encourage customers to use it again.

The market for insurance, credit cards and savings accounts is unlikely to grow that much though. However, Moneysupermarket.com is branching out into other areas, where the prospects are better.

One such arena is travel, where visitors to its website can compare the prices of packaged holidays, hotels and car rental.

Moneysupermarket.com share price chartThe company has seen strong growth here and is putting more money into it. Back in 2012, Moneysupermarket.com bought MoneySavingExpert.com – a leading money-saving website founded by well-known financial journalist, Martin Lewis.

This business is doing well. The website has a thriving online community, which has generated extra business in areas such as credit cards.

The big boost, though, has come from price comparisons on utility bills, where MoneySavingExpert.com’s cheap energy club has tapped in to the growing number of people switching from the big six energy suppliers.

Moneysupermarket.com’s ‘home bill checker’ service lets people compare their utility and broadband bills with those of others living in the same postcode catchment area. The firm looks well placed to grow here. Moneysupermarket.com also has the potential to make money by selling information on customer data trends (not personal information) to insurance firms.

The shares are not in the bargain basement, but look reasonably valued at just over 15 times this year’s expected earnings. There’s also a nice divided yield of 4.4% to be had. With profits well placed to keep on growing, now looks like a reasonable time to buy in.

Verdict: buy

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