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iSelect

Nov 06, 2014

ISU
Investment Type
Small-Cap
Risk Level
Action
Rec. Price ($)
Stock of the Day - iSelect Ltd (HOLD)

iSelect Ltd (ISU) has become a target hotspot in the recent time. The Company reported strong growth for FY14 and consolidated its position as Australia’s leading online comparison service. ISU’s vital performance in Health Insurance, growing contribution from newer business verticals and transformed management team added to the FY14 results. As at 30 June 2014, the Company has no debt. Further, dividends paid or declared since the start of the year are $nil.


ISU FY14 Summary (Source – Company Reports)

In 2014, the Company invested in commercial partnerships and data mining. There were a number of investments made under a new commercial partnership team structure. With the data mining and analytics function, ISU is now able to target and optimize the marketing spend and convert subsequent sales leads into completed transactions. In 2015, the Company aims to develop and re?ne the suite of data analytic technologies within its intelligent consumer and consultant matching system, known as ‘iConnect’.

The Company also intends to review ISU’s capital structure and dividend policy after resolving the NIA loan in order to address concerns raised by the shareholders over ISU maintaining an inefficient balance sheet. This came as a blow in view of ISU having about A$60 million in cash on the balance sheet post acquiring Energy Watch on 1 July and ISU’s strategic acquisition of 20.1% stake for US$4.0m (A$4.5m) in Malaysian based Intelligent Money (iMoney) announced on 25 September 2014. It will be prudent to note the amount of leads and transaction volumes generated by ISU’s brand strength and any improvement in cash conversion by virtue of said acquisitions.

On the above lines, the Company has highlighted that there has been a 15% lead growth in Health in FY14 in comparison to FY13. The investments in Energy resulted in 50% lead growth. Similarly, car and broadband segments also witnessed good lead growth.


Financial Performance Summary (Source – Company Reports)

Conversions also improved across most verticals. The improved resourcing in FY15 looks encouraging. In this direction, the Company has reconfigured home loans and broadband segments. With regards to the sales unit, there was a 16% and a 53% rise in Health and Energy, respectively. By virtue of improved conversion, there was a 22% growth for sales units for Life. The Revenue per sale (RPS) improved for Health and was significantly high for Life and Energy. However, contract renegotiations negatively impacted the Car segment in terms of RPS.

The segment-wise performance also disclosed that Health segment witnessed largest annual premium increase in nine years. The boost also came-in from the Qantas partnership. There was an overall improvement in revenue for the Car segment. The overall segment revenue for Health and Car insurance rose by 12%.


Health Revenue and RPS (Source – Company Reports)

The Household Utilities and Financial segment saw a segment revenue increase of 30%. There was improvement in profitability, conversion and RPS for Life. For Energy, major marketing and people investment has been done in H2 FY14 which impacted the profitability for a short term apparently.


Life Revenue and Energy Revenue (Source – Company Reports)

Growth in health policies and increased trail commission receipts have led to growth in operating cashflow.


Few Brands (Source – Company Reports)

The Company also underscored its increased investment in commercial team to optimize the approved partner list. In FY14, number of partner brands reached 127. The Company intends to drive optimal product design and mix through increase in data and insight sharing with partners. The range has increased by 15% in FY14 to over 12,500 products. ISU has also entered into a distribution agreement with Health.com.au to provide a secured facility and defer commissions paid on Health.com.au’s policies until 30 June 2015.

The upcoming Annual General Meeting 2014, to be held on 17 November, will extract more updates and information about the growth of the Company. ISU is also found to be making strategic efforts towards strong investment in brand building, prioritization in business verticals, continued development of iConnect, and exploring global opportunities while aligning partnerships with growth potential, which constitute ISU’s next phase of growth.


Total Business_Trail Book Composition FY14 (Source – Company Reports)

As per the Company’s outlook, it expects a low double-digit revenue and NPAT growth on a trend basis and earnings towards H2. ISU assumes to reap benefits from Energy business going forward in view of attractive industry outlook. The Company states that Energy Watch’s integration is progressing as planned and expected.


ISU Daily Chart (Source - Thomson Reuters)

So, the overall game plan looks worthy of waiting for a while. Accordingly, we put a HOLD recommendation for this stock at the current price of $1.37.


  

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