iSelect woes go from bad to worse

CEO jumps ship as company misses forecast.

The CEO of newly listed insurance comparison business iSelect (ASX: ISU) has stepped down just four months after taking the company public and only 21 months after taking the role. The IPO raised $215 million, however the company has been a constant source of controversy in recent weeks after it announced in an August 29 announcement that it had not met its prospectus revenue forecast. This saw the share price trade as low as $1.19 after debuting at $1.85. It recently traded around $1.30.

Just weeks after listing on the ASX, iSelect was probed by ASIC as to whether the prospectus figures it provided were correct. iSelect this week briefed the market on the outlook for the current half, stating that it would miss its revenue forecast but would still hit its earnings before interest, tax, depreciation and amortization (EBITDA). This was before the costs of finding a new CEO was taken into account.

iSelect, which has been operating for 13 years, runs the comparison website iselect.com.au. It allows consumers to easily compare the price of health, car and life insurance, as well as home loans, electricity, gas and broadband. The company’s business model is similar to many others in that it collates data from many sources and takes a cut from sales generated. The company does not appear to have any barriers to entry and can be easily replicated, as can be seen by the entry of global competitors into the local market. Additionally, Australia’s largest health insurance provider, Medibank, does not provide cover through the website.

Having said that, iSelect is understandably positive about the outlook for the company. Executive chairman Damien Waller attributed the revenue disappointment to a decision to push back a car insurance marketing campaign and noted that the company “[has] the right business fundamentals in place to deliver results that will restore investor confidence and today’s announcement reflects this.”

Foolish takeaway

IPOs can be risky if the company listing doesn’t quite stack up to the shiny advertising brochures. iSelect is one such company that has underperformed in its first few months since floating and investors would be wise to sit and wait to see how the company’s results to December finish up before diving in.

iSelect isn’t likely to pay a dividend for a number of years. Those looking for a stock paying a big dividend should discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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