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Archived articleThis is an archived article from 2024 - please note that any content within the article may be out of date.

12 Stocks of Christmas: MONY

MONY (LON:MONY) - Comparing the comparers, this looks like a good deal

  • Market cap at the time of writing: £1.1bn, at a share price of 190p.

This is another stock that was a strong contender for my 2025 watchlist. Ultimately I decided that my fresh picks should be companies with smaller market caps, as my goal is really to provide a “small-cap watchlist” rather than a more general watchlist.

Even so, the temptation to include Moneysupermarket was strong.

I am a former shareholder of Gocompare (GOCO) which in the end got taken out by Future plc (FUTR) for nearly £600m in 2020.

For context, Gocompare’s results in FY December 2019 showed revenues of £152m and adjusted operating profit of £26.5m, although that was sharply lower than the prior year due to investment in automatic switching software.

A more representative figure for operating profit might therefore be 2018’s £44m. Applying the then-tax rate of about 20% to that, I get a P/E multiple paid by Future of c. 17x, and Future also took on Gocompare’s net debt (over £70m). Future may have overpaid but it shows what sort of valuation was achievable in a bull market.

Fast forward to the current year and another MONY rival is potentially going to see some deal-making. Media reports in October suggested that a major Canadian pension fund was exploring the potential sale of its stake in the sector leader, Comparethemarket (CtM). The CPPIB owns 30% of CtM and was reportedly thinking about offloading it.

Again this is just media speculation, but the valuation that CPPIB would put on CtM was said to be “up to 15 times its earnings”, suggesting a value of £4.5 billion for CtM as a whole.

No further media reports have been seen since then, so perhaps no buyer turned up who was willing to pay that sort of valuation for it, but equally we can say that the CPPIB was not willing to sell at a price far below that valuation.

All of which brings us to MONY.

With its rivals being valued at up to 15-18x earnings, where is MONY trading? At 10.5x earnings:

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Those are forward earnings, so perhaps you might argue that a trailing multiple is a fairer comparison? It turns out that you get a similar answer of about 11x if you use the FY Dec 2024 net income forecast of £91.9m.

Net debt is immaterial (last seen at £25m as of June 2024) so I do not include it in the calculation.

As I noted when I covered this stock in October, MONY is on track to generate a similar result in 2024 as it did in 2019. But the valuation then was £2 billion, while the valuation now is only £1 billion. Its quality metrics have deteriorated over time, but they do remain above-average:

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Clearly the market is less excited about MONY’s growth prospects now than it was five years ago. Given that revenues have increased over this timeframe but profits haven’t, that is understandable.

But to my value-investor eyes, this is still a 50% discount for a company with a strong position in a market where there are only a few competitors. Comparethemarket might be the big dog with over 50% market share, but MONY is the best of the rest. So I’ve compared the market and I think that MONY is very interesting at the current level.

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12 comments


Avatar for smatthews1

Good read this Graham, especially regarding the valuations across the sector. I was doing some digging on this around August time and concluded it was good enough for the SIPP. Good valuation and strong divi's. 

My concern lies around the other competition in this sector, not only with the other comparison sites but other cashback firms also playing their part. I am surprised they can carve out such strong margins.

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Avatar for Charles Mitchell

My view on the sector is AI will probably make MONY and GOCO increasingly irrelevant. 

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Avatar for smatthews1

I wouldn't rule this out, but can you elaborate in what form this would be a thread to them? I personally wouldn't be surprised if they consider using AI themselves to assist with their marketing, especially when you consider how much data they already have at their disposal.  

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Avatar for Charles Mitchell

I have started using AI through gemini Deep research. After a few seconds get this for best UK savings rates. 

The best UK savings rates vary depending on the type of account and access requirements. Here's a summary of the top rates as of December 29, 2024, based on my research:

Easy-access savings accounts:

  • Moneybox Cash ISA: 5%
  • Chase: 5%

Notice savings accounts:

  • RCI Bank: 4.9% for 95 days notice

Fixed-term savings accounts:

  • Hampshire Trust Bank: 4.81% for six months
  • Habib Bank Zurich: 4.8% for one year

It's important to consider your individual needs and circumstances when choosing a savings account. If you need frequent access to your money, an easy-access account is a good option. However, if you can lock your money away for a fixed term, you can generally earn a higher interest rate.

Here are some other factors to consider:

  • Minimum deposit: Some accounts require a minimum deposit to open.
  • Maximum deposit: Some accounts have a maximum deposit limit.
  • Withdrawal restrictions: Some accounts may have restrictions on how often you can withdraw your money.
  • Bonus rates: Some accounts offer bonus rates for a limited time.

It's always a good idea to compare different savings accounts before you decide which one is right for you.

Sources and related content

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Avatar for Rusty2

Charles, you can often get cashback, if you join via comparison sites, l don't think you will get that with AI.

That Chase account is only for new members and the rate is only for a limited time. What are all the other easy access rates, without the limations?

Easy access rates are generally higher at the moment, because rates are predicted to fall, so long term rates are lower than short term rates.

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Avatar for Charles Mitchell

Rusty2- Just a quick illustration of what Gemini AI can do. I could have asked a much more detailed question. Early days using it, but worked well at looking at return on bonds based on coupon, expiry date and redemption price.  The point I was trying to make is AI can be very useful and companies relying on comparison site may not have such a easy time.

See the bond return. If the below is wrong let me know, but sort of what I had calculated in my head.

What is the total return on a bond redeeming at £100 in 35 months yielding 12% with buy price of £110

To calculate the total return on this bond, we need to consider both the capital gain/loss and the income from the yield. Here's a breakdown:

1. Income from Yield:

  • Annual Interest: £100 (face value) x 12% (yield) = £12
  • Total Interest: £12 (annual interest) x 35 months / 12 months = £35

2. Capital Gain/Loss:

  • Gain/Loss: £100 (redemption price) - £110 (buy price) = -£10

3. Total Return:

  • Total Return: £35 (total interest) - £10 (capital loss) = £25
  • Percentage Return: (£25 / £110) x 100% = 22.73%

Therefore, the total return on this bond is 22.73% over the 35-month period.

Important Considerations:

  • This calculation assumes the bond is held to maturity.
  • It doesn't account for reinvestment of coupon payments, which could enhance the total return.
  • It also doesn't factor in any potential tax implications on the interest income or capital gain/loss.
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Avatar for Rusty2

But AI is just copying comparison sites for interest rates. It has no links to open accounts.

One major point of comparison sites is you can get cashback or bonuses, if you go through them. I did when l changed my energy supplier.

Gemini seems ok for accuracy but much of AI information has many errors, l see it everyday.

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Avatar for jesseowens

The big threat from AI is the development of agents. Your personal agent would know  all of your details and be able to actually navigate websites and fill out forms. When you car insurance needs renewing your agent would just ping you with the best offer asking to go ahead, and maybe there's no need for price comparison websites. Your agent doesn't care about the extra work of having to fill out forms with different insurers....

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Avatar for Sundance13

Both Character & MONY look good, but for the latter, what will be the catalyst for a re-rating?

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Avatar for Tortoise investor

Switching returning in energy and money (mortgages and loans) should be the short term driver. I think the share price has gone down as this is currently at negligible growth.  I hold.  

Longer term it's not clear what the growth strategy is. 

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Avatar for Rusty2

 Graham. I hold both Character (LON:CCT) and MONY (LON:MONY), both look very good value and are paying over 6% dividend.

Thanks for covering them.

21
Avatar for Graham Neary

Very welcome Rusty!

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