Edmond Jackson's Stockwatch: "Quality yield" investors click here

Despite a forward price/earnings (PE) multiple of possibly 17 times, a strong trading update from price comparison website Moneysupermarket.com should bolster its appeal to income funds.

At about 214p currently the prospective ordinary dividend yield is just over 4% and Moneysupermarket is prone to occasional special dividends (I've added these to the Company REFS table). It helps explain why the likes of Standard Life Equity High Income fund initiated a position last summer.

Circa 4% would be regarded by professional investors as indicating an attractive yield without high risks; once an equity yield rises over 5% the business is usually exposed in some way and/or the earnings cover is tight; however, Moneysupermarket.com is making good progress and expected earnings cover is about 1.4 times.

Strong cash flow profile underpins dividend

Furthermore the five-year table shows cash flow per share consistently and substantially ahead of earnings per share, with low capital expenditure needs, which reflects well on the business for dividend security and helps explain the special payouts.

Mind that in 2014 some £17 million is being spent to enhance the websites' usage whether by mobiles, tablets or desktop PC's - "We'll be rolling out the new technology to more customers across our business channels in the months ahead" -so I would not raise hope for another special dividend in the near future. If there is a pattern, a special is every two years, but it will obviously depend on circumstances.

This respectable growth profile has been achieved despite variable performance by some websites within the group, according to short-term factors. At the 2013 prelims last March, the group was doing particularly well from TravelSupermarket.com and MoneySavingsExpert.com (which had enjoyed a boost from energy switching via its Cheap Energy Club), while Home Services had slowed. A relatively small contributor, it has bounced back with 31% revenue growth in the nine months to end-September 2014.

Overall revenue growth has been 12% and a stronger performance from MoneySuperMarket.com has boosted the group to 18% growth in the three months to end-September.

Strong chart reflects a healthy business

When the group floated at 170p in 2007 its price initially dropped 10% amid concerns about the rating, and 2008/09 obviously saw the effects of the financial crisis. But from a 2010 low of 62p there has been a sound recovery/growth profile

despite a slide from about 200p near 140p in the second half of 2013. That year's second quarter had seen weaker trading amid lower growth in insurance after Google changed its search algorithms, which reduced visitors and revenues. As the algorithms settled down, Moneysupermarket rebuilt its positions.

Director share buying

This was a significant purchase in August of 50,000 shares at 179.9p worth £89,800 to own 100,000 overall, reflecting well on perception of the risk/reward profile. In Moneysupermarket’s early listed years there was a fear that price comparison websites would become ultra-competitive thereby undermine margins, however this group has shown adept marketing.

Furthermore it stands up better against various rivals for independence: there is an ongoing "conflict of interests" issue regarding insurance, where providers such as Esure and Admiral respectively own Gocompare.com and Confused.com, and where the Financial Conduct Authority (FCA) has said many of the 14 sites it reviewed were “unclear” about information and some were failing regulatory standards.

Moneysupermarket contends it helps customers find the right policies and products at the best possible price, so it ought to be well-positioned against the various "comparison" sites which sell insurance directly.

This qualitative hunch appears reflected in other figures this year, as the interim results showed a 14% rise in like-for-like pre-tax profit to £17.1 million, on turnover up 9% to £122.4 million.

Bullish charts confirmed

When I first drew attention to Moneysupermarket at 145p in October 2013, it was attracting support just above 140p and a chartist view reckoned "strong buy" with the shares at a previous resistance level turned support level.  "In the midst of this head and shoulders pattern an open gap has been left at 200p...and all gaps must be closed."

The situation looked mixed after some mid-summer slowdown in the business however a 5% prospective yield was quite compensating. Perception of the shares looks likely to remain a tussle between fears of growth softening and medium-term company figures (to date) suggesting otherwise; but this caution helps explain why the market prices the shares to offer a worthwhile dividend.

Evidence of UK wage growth is a positive

With net debt a modest £18.1 million after paying the interim dividend during September, the chief risk is another consumer recession; however, latest data suggest UK wage increases are outpacing inflation for the first time in five years, a positive sign for discretionary spending.

This is a 100% UK-focused business i.e. low-risk of stagnation from the Continent. Mind that the final quarter of 2014 is unlikely to shine, like-for-like, given Q4 2013 benefited from exceptional demand for energy switching.

Brokers' forecasts last August and September anticipated slower earnings growth in 2015 yet the company's progress looks robust. If the consumer outlook brightens and there are no bad surprises from the industry then there may be scope for upgrades; also if the investment programme delivers benefits say over the next two to three years.

So at about 214p the stock remains interesting for "quality yield" investors especially.

For more information see: corporate.moneysupermarket.com

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser..