Prices comparison web site operator Gocompare.com demerged from esure Group PLC (LON:ESUR) and the shares are under-priced, according to Peel Hunt.
The shares closed at 72p on their first day of listing, which is some way short of Peel Hunt's 85p target price, making the shares a 'buy'.
The natural comparison to make is with Moneysupermarket.com Group PLC (LON:MONY), another prices comparison web site operator, which trades on a price/earnings ratio (PER) of 17.6 based on Peel Hunt's forecasts, and which offers a free cash flow yield of 6.3%.
Even at Peel Hunt's 85p target price, the PER for fiscal 2018 would be 12.2, and the free cash flow yield is projected at 7.8%.
The broker's view is that the broader characteristics for prices comparison web sites (PCWs) are attractive for investors.
“PCWs add value for consumers by delivering cost savings, and for providers by adding flexibility to business models. This has transformed the insurance industry over the last decade and is set to impact other financial and household services significantly,” Peel Hunt believes.
Gocompare.com is number two in the well-established, relatively mature and defensive home and motor insurance sector of the PCW business.
Unlike Moneysupermarket.com (LON:MONY) and USwitch, it has not made many inroads into other PCW sectors, and Peel Hunt thinks this offers plenty of growth opportunities for such a strong brand.
“GOCO has strong brand recognition for the scale of TV spend. In comparison to MONY, it is listing with a geared balance sheet (logical given its strong cash generation). It intends to pay down debt, distribute c20-40% of earnings and use any surplus to invest in disruptive start-ups. Additionally, the use of partners to support entry into other verticals may give rise to M & A opportunities to mitigate risk and build margin,” Peel Hunt asserted.
Shares in Gocopare were up 1.1% in a falling market on Friday morning.