MoneySupermarket.com Group Plc (LON:MONY) shares backed off in Tuesday’s early deals in London after financial results showed a decline in margins.
The operator of price comparison websites reported a 12% rise in revenue, to £316.4mln in 2016 from £281.7mln in 2015. Profit for 2016 is reported at £73.5mln, up 16% compared to the year before.
City analysts point out, however, that revenue growth is driven by advertising spend and gross margins reduced to 75%, from 80%.
MoneySupermarket also told investors that revenues for early 2017 are behind those seen last year, as it has not yet run a ‘collective switch’ to transfer large numbers of customers to new energy tariffs.
It said that revenues from insurance, credit cards and loans were strong in the first two months, while low interest rates continue to weaken switching activity for savings and current accounts.
Liberum Securities analyst Ian Whittaker, in a note, said: “Our concern with MONY has always been that revenue growth is linked to marketing spend and therefore margins could come under pressure going forward as competition in the price comparison website space intensifies.
“These results have realised our concerns.”
Peel Hunt cut its rating on the stock to 'add' from 'buy' but raised the target price to 370p from 350p. The broker said the decline in gross margins and delay to providers' appetite for collective swiches, due to fast moving energy prices, may give pause to the recent share price run.
However, Peel Hunt said January and February have "started well" for insurance and core money verticals, while it wecolmed the company's £40mln share buyback programme.
"The market will be unnerved by the further absence of a collective switch, and the movement in gross margin.
"However, the reiteration of confidence in full year forecasts suggests that no change in existing numbers is necessary."
In London, MoneySupermarket shares tumbled 6.52% to 328.10p in afternoon trading.