In today’s daily we have covered stock research on iselect (HOLD).









 
The S&P 500 was up by 6.20points or 0.31%to 2028.75. U.S. stocks edged up in a choppy Wednesday session as traders digested reports that new stimulus would be announced by the European Central Bank at its Thursday meeting, while declines in IBM and Microsoft also limited the gains. Market participants have been looking for more aggressive measures from central banks, specifically the ECB, to combat the risk of deflation and a weakening euro zone economy.

IBM shares fell 3.1 percent to $152.16 the day after reporting lower-than-expected revenues and giving a 2015 profit target that was below estimates. The stock was among the biggest decliners on the S&P 500 and weighed the most on the price-weighted Dow industrials. The blue-chip index, however, got a boost from UnitedHealth Group Inc which rose 3 percent to $108.81 after its fourth-quarter earnings topped expectations.




IBM Daily Chart (Source – Thomson Reuters)
S&P ASX 200 was up by 85.7points or 1.61%on Wednesday and closed at 5393.4 points. We expect companies exposed to the strengthening US dollar to perform well. CSL jumped 1.3 per cent to $84.83. Westfield Corporation added 3.3 per cent to $9.33 and Sonic Healthcare was up 2.5 per cent to $18.33. Senex Energy, feeling the punch of the plunging oil price, slashed capital expenditure by 20 per cent for the 2015 financial year.
All big four banks finished higher. Commonwealth Bank rose 1.4 per cent to $84.67 and Westpac added 1.5 per cent higher to $33.38. National Australia Bank gained 1.5 per cent to $34.08 and ANZ was 0.4 per cent up at $31.63. SPI futures are up 23 points to 5364 at 6.10am AEDT. The Australian dollar opened at US80.86¢, compared with US82.13¢ at Wednesday’s local close.

Sonic Healthcare Daily Chart  (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
 
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Stock of the Day - iselect (HOLD)

iSelect Limited (ISU), the online-driven comparison service Company that compares insurance, household utilities and personal finance products, reported to have a 16% increase in Group Revenue to $136.7 million; 10% increase in EBITDA to $29.2 million; 27% increase in NPAT to $18.3 million; and an absolute 23 percentage point increase in operating cash conversion, on a normalized basis in FY14. The Company further conveyed about its aim to chase a $10 billion opportunity across health insurance, energy, car insurance, life insurance, home loans and personal finance.


Annual Commission Pool (Source – Company Reports)

ISU reported sales of A$120.37 million for the fiscal year ending June of 2014, which was a small increase of 2.0% from that of 2013 (sales of A$118.04 million). The market capitalization of the Company has been A$335.24 million as at December 2014. It achieved a lower gross profit margin than that of 2013 as the cost of goods sold totaled A$73.63 million, or 61.2% of sales on the A$120.37 million in sales reported in 2014. As of June 2014, the accounts receivable for the Company were A$55.41 million, i.e., 168 days of sales, higher than at the end of 2013 (wherein 160 days of sales in accounts receivable were noted). ISU has paid no dividends during the last 12 months. The stock of the Company has remained unchanged for the 52 weeks ending early December 2014 at A$1.29. ISU reported that its earnings per share fell 63.6% in 2014 from 2013.

The Company at its Annual General Meeting in November 2014 provided formal guidance for FY15 of 10 – 12% NPAT growth. This looked a little conservative in view of an expected forecast of about 14.5%. In the ISU’s LTI plan for CEO Alex Stevens, ISU stated for achieving a 3-year CAGR in EPS of 12% before LTI shares are conferred and 15% growth for 100% of the shares to be conferred. This growth may represent an achievable target. The Company’s LTI targets and long-term trend guidance of low double-digit NPAT growth reflect a moderately positive outlook. ISU further confirmed that it’s witnessing good performance for health policy sales growth while organic revenue growth is seen to be strong in the Energy business and expectations with regards to the Life insurance business trading are being met.


FY14 Operational Performance Highlights (Source – Company Reports)

The Company expects to succeed well with regards to its new energy business in a manner similar to its health insurance business (with ~20% market share of health insurance sales). The Company may get additional opportunities in the longer term from industry verticals, such as home loans. The growth profile looks a little soft in the near future based in ISU building its presence in other industry verticals.


Customer Experience (Source – Company Reports)

Nonetheless, one should take into account the key attributes being exhibited by the Company, including, but not limited to, robust balance sheet with ~$60m in net cash and capital management projections; strong fundamentals in key business unit health insurance; and update with regards to the commencement of dividends to be provided at full year FY15 results. Further, ISU’s balance sheet supports its growth plans and there looks to be an improvement in cash flow conversion with generation of more upfront commission and its NIA deal coming to a closure. The Energy Watch and iMoney are also performing well.

The risks that may play a role in affecting ISU’s performance include low barriers to entry owing to low capital requirement for setting up of online comparison platforms; regulatory changes in policies such as the private health insurance policies including any change to the Federal Government Rebate etc.; success of the E2E business model in other industry verticals; and risk to ISU’s service with loss of product providers for comparison perspective.


ISU Daily Chart (Source - Thomson Reuters)

Given the above, we reinstate a HOLD recommendation for the stock at the current price of $1.15.

 


 
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