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N1 Holdings IPO: How Does it 'Compare' to its Peers?

N1 Holdings IPO: How Does it 'Compare' to its Peers?
Feb 17, 2016 By Simon Herrmann

Comparison website operator N1 Holdings Limited seeks to raise up to $5m to boost marketing and branding.

N1’s principal asset is a network of comparison websites offering financial products to consumers. Customers can compare and purchase broking services related to residential lending and home loan products, asset lending and financial planning. N1 is operating in Australia, China, Malaysia, Hong Kong, Singapore and Taiwan.

Demand for N1’s business model has become evident over the past three years with strong revenue growth and rising transaction volumes on its websites. As the Company only acts as an originator and does offer its own products, there is no limitation on product distribution capacities. However is there potentially a limit to demand for a comparison provider in this space?

Whilst there are many comparison websites on the internet, only few have listed on the stock exchange. One of the most prominent examples is iSelect (ISU.ASX), which listed on the ASX in June 2013. iSelect is a health insurance marketplace and is paid each time when a user buys a policy on one of its websites. A more successful example is Webjet, which pursues a similar business model for the travel industry. The company brings together a range of airlines, presenting their prices to users and getting paid each time a ticket is sold. The business model for these companies is basically to spend money on marketing, drive prospective clients to a user friendly platform and collect fees for each unit sold.

There is a significant difference to more successful competitors such as (REA.ASX) or (CAR.ASX), which have created a dynamic marketplace of buyers and sellers where each user adds value to the existing ecosystem. These companies are also market leaders in their fields which makes their business so successful. On the other hand companies like iSelect or N1 simply display offers of a few concentrated providers to a broad range of users, which then compare and choose products. However, these platforms don’t experience the same kind of networking effect. Whilst the comparison aspect is a handy tool and obviously enough to generate revenue, most of the ‘classic comparison websites’ struggle to generate free cash flow. On top of that, companies with relatively low revenue per lead also lack pricing power.

Additional risks surround the limited entry barriers to the industry, as N1 may be subject to increasing competition. Even though the Company has achieved revenue growth, EBITDA has historically been volatile and the company’s reliance on external capital has not yet been entirely eliminated.

Whilst N1’s revenue growth trajectory is an attractive quality, risks are evident due to the competitive nature of the industry and mixed historical performances of peers. If management can sustain the trend and grow the business via a mix of organic growth and strategic acquisitions, IPO participants may be rewarded in the long-term, however the short-term outlook appears challenging.

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Simon Herrmann Author: Simon Herrmann Feb 17, 2016

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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