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Investment View: The boss cashed out, but the price may yet rebound


Our view Buy

Price 185p (+1.1p)

There are two issues hanging over Moneysupermarket, the obscenely successful price-comparison website whose deeply annoying ads are all but impossible to ignore (which is kind of the point).

The first is the fact that in June, co-founder Simon Nixon offloaded roughly 15 per cent of the shares, netting himself £170m, which means he won't need the site. He'll likely have a private banker, or three, running around for him. The second is the recent trading statement, which unnerved investors.

Let's look at the former to begin with. Last month, I advised investors to follow the lead of SuperGroup founder James Holder who netted £20m after dumping 2 million shares in his business, apparently to fund his divorce. It makes all sorts of sense to take a very jaundiced view of businesses where the men at the top are pulling out.

However, Moneysupermarket is different. For a start, Mr Nixon, the university dropout turned financial adviser, has increasingly been taking a back-seat role in the operation.

That's something I view as a positive sign. When entrepreneurs float businesses and retain big stakes, they can sometimes forget that they have partners to deal with who should have the same rights as them and have a right to expect equal treatment.

I'm not saying that's the case with Mr Nixon, but it can happen. It's frequently a positive thing for a businesses when the founder steps back with the aim of enjoying some of the wealth they have generated.

As such, we can't really complain about Mr Nixon cashing in some of his chips. Moreover, his move makes more shares available to the open market for trading (known as improving liquidity) and was accompanied by a juicy special dividend.

Of much more concern would be last week's trading statement, which suggested that all is not well with the money part of Moneysupermarket.

The Government throwing cheap cash at the banks to encourage mortgage lending has come with some nasty side effects. It has crimped savings rates, and that has crimped business for Moneysupermarket because savers now don't want to know.

The site is also suffering from fewer banks putting products on its markets, and intense competition from rivals such as GoCompare, Confused.com and those infernal meerkats.

Google changing its search algorithms favoured them and worked against Moneysupermarket, but now the changes have settled, you can expect to see it working to address its slippage in the search rankings.

Those rivals have also been advertising hard. You're about to see Moneysupermarket's response, but putting back its ad push (and these sites are very ad-dependent) meant sales growth nearly ground to a halt in July.

However, all is not lost. Moneysupermarket's other divisions, travel, insurance and home service, all gained ground.

The company has the financial clout and the wherewithal to step up its game.

While analysts may respond to the statement by tweaking their numbers downwards, falls in the share price, like the 15 per cent tumble last week, are often overdone. As long as the next update contains positive news, it could easily rebound.

As for those banks, competition is gradually coming on stream, with the new banks being spun out of Lloyds and RBS keen to grab new business (and their current "parents" motivated to get back what they've lost).

So Moneysupermarket's travails may be short term, although it would need a significant uptick in consumer confidence (and in consumer incomes) for the site to really fly. Personal loans, credit cards and the like are a big driver.

The shares trade on 17 times this year's forecast earnings, falling to 15 times next year's. Next year's forecast yield (when there won't presumably be a special pay out) should hit 3.7 per cent, which is respectable.

I accept that there are clouds over Moneysupermarket right now. You couldn't quite use the term "profit warning" to describe the trading update, but it was worrying and while it may be an "old wive's tale" it does sometimes seem like trouble in the City comes in threes.

That said, this company could bounce back rapidly, and the shares with it. I'd bet on the latter and make the stock a buy, albeit a risky one.