GoCompare.com Group PLC’s (LON:GoCo) shares were weak on Thursday after the price comparison website group accompanied full-year results with plans to invest in its automatic switching service, weflip, leading City broker Peel Hunt to cut its estimates and share price target for the firm.
The FTSE All-Share-listed firm reported a 22% increase in adjusted operating profits to £44mln for the year ended 31 December 2018, supported by lower marketing spending in the key price comparison division, as its revenue rose by just 2.3% to 152.6mln.
READ: GoCompare.com sinks as flat revenues offset profit rise in first-half
The group is to pay a final dividend of 0.8p per share, taking the full-year payout to 1.6p, up 14% compared to 2017.
The company launched weflip, a proposition aimed at benefiting ‘infrequent switchers’, starting with Energy in October 2018. The group said that throughout 2019, it will invest “to scale weflip and unlock the potential for exceptional growth in the medium term.”
GoCompare's chief executive Matthew Crummack said: “We believe there is a substantial opportunity in addressing the 'infrequent switchers', and having focused on doing more for less in 2018, we now move into our growth phase as we invest to transform the Group.
"Based on our extensive analysis, we believe weflip has the potential to disrupt markets in the same way that price comparison did when GoCompare was launched in 2006. Over the medium term, we believe weflip will deliver exceptional growth and transform the Group."
In a note to clients, Hargreaves Lansdown analysts said: “weflip would give GoCo an ongoing relationship with its customers, earning revenues over a longer period of time and reducing the need for constant marketing spend to keep customers coming back. That would make GoCo a lower risk, higher margin business.
“It’s going to take money to get weflip to where it needs to be though, and that’s soaking up the cash coming from the core price comparison business. The moustachioed tenor is forking out £10mln to fund his younger brother next year, management will be hoping that weflip is quick to hit the right note.”
Peel Hunt cuts target, keeps ‘buy’
In a note to clients, analysts at Peel Hunt pointed out that guidance on trading pre-WeFlip is for a low revenue growth and flat marketing margin in the current year.
They said that, as the motor insurance market remains subdued and competitive spend high, they have downgraded their core activity figure for the price comparison website by 13% or £6.3mln.
On top of this, the analysts added, GoCompare indicated that it has allocated up to £10mln for marketing WeFlip this year.
As a result, they said their full-year revised pre-tax profit estimate for GoCompare after this investment is rebased by 32% to £32.7mln, down from £48.0mln previously.
This led them to cut their price target for the stock to 110p from 140p, although they retained a ‘buy’ rating on the stock.
In afternoon trading, GoCompare shares were 5.8% lower at 65.60p.