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iSelect Shares Tumble 40% on Earnings Downgrade

iSelect Shares Tumble 40% on Earnings Downgrade
Jan 12, 2016 By Imran Valibhoy Tags: ISU

The shares of the insurance comparison website iSelect (ASX:ISU) lost almost 40 percent at the close of trading yesterday, after the company announced a profit downgrade due to operational issues.

ISU stated yesterday that the company faced various strategic and operational issues throughout FY15 which will continue into 1H16. An extensive review of the company’s operations and strategic marketing mix was conducted under its recently appointed Chief Executive Officer Mr. Scott Wilson.

The strategic review identified that the management’s decision to maintain high staffing levels during the seasonally low demand 1H16 period will have a deeper impact on full year earnings than initially anticipated. The situation was worsened due to a significant increase in direct staff costs relating to the health insurance business unit, and materially lower sales recorded in the department during H1 FY16. 

ISU also mentioned that the new programs introduced in its health insurance contract centre recruitment, training and development regimes were not operative. Delays in updating and investing in brand creation and enhanced marketing assets have also proved to be a major setback.

The company expects losses of up to $5 million, bringing the earnings guidance down to a range of $15 - $18 million for H1 FY16.

iSelect CEO Mr. Scott Wilson stated his views on the company’s performance: “The reduction in EBIT is disappointing, but what has become clear since my appointment as CEO is the importance of ongoing and additional strategic investment in the business to ensure iSelect creates long term growth for shareholders. What has pleased me following the completion of the review is that the fundamentals of the business are strong and the company has the financial stability to deliver on the opportunities available.”

ISU will be implementing multiple strategic initiatives regarding its customer service, brand management, investment management and development of R&D and other core systems. Mr. Wilson expects the operations to reach a positive momentum in H2 FY16 after a successful execution of the strategic initiatives.

ISU closed at $0.67 yesterday and has lost approximately 45% in the past year.

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Imran Valibhoy Author: Imran Valibhoy Jan 12, 2016

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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