iSelect Limited (ASX: ISU)

Underperformance of the Health vertical - iSelect Limited that operates in the online product comparison sector, surged 32 per cent on 1 June 2018, following an update on the media speculation. Recently, the Group was noted to be tugged between discussions that a number of parties expressed their interest in iSelect, while Innovative Holdings Australia Pty Ltd, a substantial holder of the Group changed its holding from 12.21 per cent of the voting power to 10.15 per cent of the voting power. The Group confirmed that it has received in the recent weeks several unsolicited and non-binding proposals from both listed and unlisted parties in relation to mergers and change of control transactions which involved iSelect. As of now, these approaches are being reviewed by the Board and they are assessing their merit. But there is no certainty that a transaction will result from these preliminary proposals. For this purpose, the Group has appointed Allier Capital and Goldman Sachs as its financial advisors and Herbert Smith Freehills as legal advisor.

The Group recently reviewed its expectations for the remainder of the 12 months ending 30 June 2018 (FY18) in light of current market conditions, performance in the second half of FY18 and in particular trading over the past five weeks. Its Health and Energy & Telco verticals have been negatively impacted by market volatility and reported lower than expected leads due to changes in the marketing mix, particularly reduced search engine marketing (SEM). It was worth noting that ROE decreased from 6.2 per cent as on June 2017 to 0.3 per cent in December 2017.


EBITDA for Health Vertical (Source: Company Reports)

Until the proposed Government reforms to Australia’s private health insurance industry come into effect in July this year and incentives to attract young “new to PHI” members ramp up in April 2019, no improvement in the health insurance market is expected until the fourth quarter of FY19. The Company Balance Sheet remains strong with no debt and accounted a cash balance of $21.1 million. The business remains cash generative. In addition, the balance sheet value of the Company’s trail book has increased to $123.7 million at 31 March 2018. While the YTD number of leads for Energy & Telco has been relatively flat on FY17 YTD, and conversion rate and RPS were both up, the Company had budgeted for an even higher conversion rate. As a result, YTD EBIT was substantially below forecast. The stock has been declining by 70.24 per cent since past one year and started recovering in the last one month. The stock climbed up by 13.64 per cent in last five days. Given some level of shortcomings, ISU still looks “Expensive” at the current market price of $0.825 and we look forward to any potential merger update.

 
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