What: An 18% rise in revenue and 47% surge in first-half profit has been enough to see iSelect Ltd (ASX: ISU) surge 5% this morning to $1.40. The comparison website, which allows consumers to easily view private health insurance, life insurance, car insurance, broadband, energy, home loans and personal financial product options, is finally showing some of the promise envisaged when it listed in June 2013 at $1.85.
So What: The profit jump represents an important milestone for the company and will hopefully appease investors that felt misled after iSelect failed to meet its prospectus revenue forecast for the 2013 financial year.
In a tumultuous time for the company, CEO Matt McCann resigned just four months after the IPO, ASIC instigated an investigation into potential breaches of the Corporations Act and the share price plunged to a little over $1.00. The shares have since recovered to over $1.30, however with 2014 financial year reported earnings per share of only 2.4 cents, iSelect has been trading on a price to earnings ratio of nearly 55!
Earnings per share for the six months to 31 December 2014 rose 48% to 2.1 cents on an 18% increase in revenue, however no dividend was announced. The utilities and financial products segment led the way, reporting a 43% rise in earnings on a 56% rise in revenue, while the insurance comparison business was overall flat.
What Now: My biggest concern in the result is that the majority of iSelect's growth appears to have come from new-ish acquisitions. In the last six months iSelect acquired Energy Watch for $9.7 million and invested $4.6 million in iMoney, perhaps unsurprisingly expanding iSelect's comparison service into energy and financial products.
For the full year, iSelect expects net profit after tax to increase by between 10% and 12% on a normalised basis (which results in a strong second half). NPAT should therefore be around $20 million and earnings per share 7.7 cents, putting the company on a price to earnings ratio of 18.
Another concern for me is the risk of a capital raising in the near future and competition risks in the industry.
