iSelect comes in from the cold

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A little over a year ago the comparison website operator iSelect acknowledged that it had to deal with “substantial strategic and operational issues”, and it appeared to have few friends in the market.

That has changed, with one of the most astute backers of undervalued growth stocks, Wilson Asset Management, reporting that it has been a buyer of iSelect stock this year.

iSelect was listed on the Australian Securities Exchange in June 2013 and traded in a range between $1 and $1.80 a share until the end of 2015.

Then in February last year it reported a loss for the six months to December 2015. While the company’s revenue rose one per cent during the half, its cost of sales rose more than 25 per cent and its administrative expenses more than 10 per cent.

iSelect operates the largest portfolio of comparison sites in Australia. Its coverage includes health, life and car insurance, mortgage brokerage, energy, broadband and financial comparison. It has three brands – iSelect, InfoChoice and Energy watch.

It acknowledged that the replacement of a successful recruitment and training program in its contact centre had hurt the rate of sales generated from leads. It also failed to invest in new brand creative.

One of the company’s other problems was instability in its senior ranks. It has had three chief executives and two chief financial officers since it was listed.

The company’s stock hit bottom in January last year when it was trading around 75 cents a share.

Wilson Asset Management told investors at a briefing last month that iSelect’s latest CEO Scott Wilson, who was appointed in October 2015, has done a good job reinvigorating the business.

WAM’s view is that the company has improved its cash flow conversion and its capital management.

WAM started buying iSelect shares in February this year at around $1.90 a share. The current price is around $2.10.

At iSelect’s annual general meeting last year Wilson spoke about his plan to turn the company into “Australia’s Life Admin Store”.

“We are much more than just another online comparison service. We are a virtual store where Australians are able to sort out all those important but fundamentally boring purchase decisions, with 90 per cent of our sales coming from conversations with our highly trained advisers,” Wilson said

“We have two million calls with customers each year, advising them on their life admin,” he said.

The company is shifting the balance of the business away from health, which is a difficulty industry. Health produced 52 per cent of revenue in 2015/16 and its contribution is expected to fall to 50 per cent in the current financial year.

New business areas include credit cards, travel insurance and mobile phone SIM cards

iSelect’s most recent financial report shows a net profit of $2.6 million for the six months to December 2016, compared with a loss of $4.2 million in the previous corresponding period.

Operating revenue rose 18 per cent from $66.2 million in the six months to December 2015 to $78 million in the latest half. The company turned a cash flow deficit in the six months to December 2015 to report $9.8 million of cash flow from operations in the latest half.

The company has undertaken a number of initiatives, including a corporate restructure, improved operational disciplines, greater focus on maximising spend efficiency and aligning leads with the capacity to convert them.

The number of leads rose from 1.7 million in the six months to December 2015 to two million in the latest half. The conversion rate went up from 9.5 per cent to 10.4 per cent.

The company got most of its growth in leads from the Energy Watch and broadband businesses.

The company completed an on-market buyback of 10 per cent of its capital in the 2015/16 financial year and launched a second tranche last July

And a new customer relationship management system has been integrated with Salesforce to provide a single customer view that allows advisers to see the complete history of a customer’s dealings with iSelect.


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