Stockwatch: Don't panic about this star

Has Moneysupermarket.com got over-cooked? After rising 30% this year to 289p in context of a near five-fold rise over the last five years, shares in the price comparison website group have eased to about 270p after the founder/deputy chairman failed to sell a 6.4% stake to institutions.

This is notable because bull markets are often characterised by "a deal too far", typically a high-profile company over-stretching with a debt-funded acquisition. Here it is potentially "a placing too far"symbolising fatigue in dealing rooms; and/or a shortage of genuinely compelling growth plays to buy at attractive prices.

Moneysupermarket remains the market leader

Not to over-react. The latest 2014 prelims showed net income more than doubled to £53 million on revenue up 10% to £248 million. During low inflation that's some achievement for a mid-size business to achieve double-digit top-line growth, normally restricted to a few small caps with limited shares available.

In fairness to founder Simon Nixon, financial advisers would urge diversification from a stake worth hundreds of millions of pounds: last year he cashed in a 13% stake for £130 million and has sold a total £400 million worth of stock since the company floated in 2007. Had he succeeded with the placing he would have held over 10% of the company, respectable in most people's eyes.

On the other side of the equation the growth of price comparison websites is creating strong competition e.g. TV advertising campaigns. Experienced investors are liable to regard a founder selling as many shares as he can - while the going is good - as shrewdly transferring risks to others. Such concerns tend to get brushed aside when a bull market is underway, but fretting signals that it is tiring. A contrast is apparent between the vendor who reckoned demand still existed, and fund managers balking.

Muddled regulation of price-comparison websites

Partly affecting both sides in the attempted trade was probably the bad publicity price comparison websites have just had from a House of Commons' energy select committee. MPs have accused the likes of uSwitch, Moneysupermarket, Confused, Compare the Market and Go Compare, of hiding the best deals and directing viewers to firms where the sites have commercial arrangements. It is not clear exactly by how much consumers have been "overcharged," albeit there is a sense that it's probably several hundred pounds over a few years. In fairness to this committee, consumers are entitled to integrity, this being a popular media: e.g. a quarter of UK consumers did some form of contract-switching in 2013 and of these 30% - up to two million customers - did so based on advice from such websites.

Such figures will have grown, and the committee has urged the websites to pay compensation. It's a muddled regulatory response, though, because the Competition and Markets Authority (currently investigating energy supply) has expressed concern that the aim to display all tariffs available could undermine the websites' bargaining position with suppliers. So there is contrasting opinion as to what ultimately represents a fair deal for consumers.

Stock price has simply got ahead of value

It’s hard as yet to define Moneysupermarket as a long-term short; just that the price looks to have run ahead of underlying value this year. When I last drew attention at 214p last November it was on the basis of a quality 4% yield also being supportive. I didn’t anticipate a 35% rise in capital value so soon. The price/earnings-to-growth (PEG) ratio is currently an attractive 0.4 (where a value below 1.0 normally conveys value in a growth stock), but as I've previously mentioned this ratio can quickly alter according to the earnings growth rate - hence the table shows the PEG jumping to 2.3 for 2016 when earnings growth is expected to moderate to 7%. Obviously that's after some years of exceptionally high growth and a business like this likely still has a sound future. Yet an anticipated slowdown in growth as the sector matures may part-explain an effort to sell another major tranche of stock before attention shifts to 2016.

Besides normalised earnings per share up 14% to 12.3p last year, the total dividend rose by 10% to 8.0p. (Note that differences from databases such as Company REFS, showing 7.4p, relate to timing of payments.) Anticipated rates of dividend growth are likely to retain institutional holders even if they don't want additional stock at around current price levels.

Revenues for the group's insurance and money sides rose by 8% and 13% respectively, while MoneySavingExpert.com rose 17%, helped by the ongoing success of its Cheap Energy Club, showing how important this area has become. TravelSupermarket.com jumped 28% benefiting from technology investment. Over £16 million was invested in websites and systems with the same targeted for 2015; the group has a mission to save more than 10 million households over £200 each in 2015. At a time when UK wage growth has yet to get properly established and people need help shopping around for the best deals on life's essentials, this is a sound business.

So don't be perturbed by the founder's failed selling effort, especially if you have acted on any of my pieces from 145p in October 2013. The issue is mainly price than flaws emerging in the investment case, though the effects of competition and regulation need watching. The stock has firmed to about 270p, but don't be surprised if it tests 250p amid wider market falls. If you are an aggressive investor wary of the current market then consider reducing exposure; otherwise don't panic.

For more information see: corporate.moneysupermarket.com.