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iSelect Ltd – Are we done with the online comparison website stock?

Oct 19, 2015 | Team Kalkine
iSelect Ltd – Are we done with the online comparison website stock?

The Takeover Talk:

iSelect Ltd (ASX: ISU) recently reported that it got a confidential non-binding conditional proposal from a US based private equity firm to acquire its shares through a scheme arrangement. The bid price is said to be below $2 per share which may be even close to the current trading price. Particularly, ISU confirmed that Providence Equity Partners being the suitor for the bid. ISU has also been reported to grant the equity firm preliminary due diligence. It has been said the company has been able to make money from the trailing commissions paid by healthcare funds over a time frame of four to five years. In case the bid does not proceed to a closure, the company might end up pursuing a share buy-back option but not before the negotiations with the private equity firm are complete. It is prudent to note that ISU has witnessed numerous issues ranging from a dip in profit in last year, inquiry from the Australian Securities & Investments Commission, and changes in senior management. The recent news about resignation of the chief executive, Alex Stevens, who joined ISU in 2014, has also been considered as an alarming one while being timed with the takeover update.


 

Energy and health insurance segments drove FY15 performance: 

ISU delivered a normalized basis revenue increase of 15% year on year (yoy) to 157.2 million in fiscal year of 2015, partly driven by the outstanding performance of the group’s energy business despite health and car insurance pressure. The firm’s earnings before interest and tax (EBIT) rose 10% yoy to $25.1 million, while NPAT surged 17% yoy to $21.4 million in FY15. The group’s core health and car insurance segment revenues fell by 3% yoy to $101 million (with the segment now accounting 59% of the overall revenue from 70% in pcp). On the other hand, ISU’s efforts in the Energy sector paid off as this segment’s revenues surged by 147% yoy and the overall household utilities and financial segment improvement by 74% yoy to $56.2 million during the period.


Operational Performance (Source: Company Reports)

Meanwhile, ISU continued to improve its market share in health insurance sector, and improved its EBITDA of the household utilities and financial segment by 625% leading to a 13 percentage point’s improvement of the segment’s margins to 17%. As per the operational performance highlights, sales units surged 45% yoy during the period while the lead conversions improved by 3.1 percentage points to 9.7%. iSelect is diversifying its business and accordingly improving its market opportunity, with management focusing over $10 billion market across its combined business.

 
Enhancing addressable market opportunity (Source: Company Reports)

Stock Performance:

iSelect stock surged over 37.21% during this year to date (as of Oct 19, 2015 close) even though the broader S&P/ASX 200 index performance had been under pressure. Management gave a fiscal year of 2016 EBIT forecast in the range of $26 million and $28 million, and is also pursuing a share buy-back for up to 5% of shares outstanding. It might further make the payment of a fully franked dividend. The stock surged over 15.69% in last five days (as of Oct 19, 2015 close) and is trading close to its 52-week high of $1.865. The P/E ratio for ISU is 47.84. We believe that the current price represents an opportunity to leverage the recent surge in view of the near-to fully priced trading scenario and the takeover updates. This along with the fact that there has been little disappointment with the performance of the company since its listing, we recommend a “SELL” on the stock at the current price of $1.75.


ISU Daily Chart (Source: Thomson Reuters)

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