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Added 2 weeks ago

I've tracked this company for a while thinking it looked attractive based on its valuation. Today actually used it as I had to buy some insurance and was surprised at how bad it was. Website gave only 2 quotes that were more expensive than buying from other sites and got three calls later from them, the first two that cut out and the third one asking why I called and then when realising he had called me tried to do a sale. 

Hopefully this is not indicative of their product and just a one-off experience.

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#Bull Case
Added 4 months ago

31 Jul 20: I promised myself not to buy "falling knives" every again after many self-sustained injuries leading to hospitalisation, but here I go again breaking my rules.

iSelect is a comparision website company, selling health and other insurance.  

The 2 key reasons for buying is:-

1. trail asset (trail commissions from the issurance taken out by its customers) is valued at $117m or 54c per share, while the current share price is now down to 19c.

2. IHA Group, a much larger competitor in other markets took a stake in the company in Jun 2018 and the share price increased on the possibility of a takeover.   However, there has not been any news and so the share price has dropped significantly as the company struggles operationally, losing money.  Once it went over the 20% threshold it has used the 2% creep rule to reach 28.7% of the company as at the last notice on 20 Mar 20.

Thorney, which specializes in these 'value' turnaround stories has been increasing its stake recently.

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#Bear Case
Added 2 weeks ago

21-Nov-2020:  I don't own, and have never owned iSelect (ISU) shares.  However, I own shares in the Forager Australian Shares Fund (ASX: FOR) who started buying ISU in April 2018 at 51 to 55 cps (in that range) after they had suffered a large share price fall from over $1/share.  Here's some background on that:

Here's Forager's upbeat take on ISU in March 2019 when ISU was trading at around 70 cps:

And here is Forager's Alex Shevelev on ISU the previous month (Feb 2019):

However, in August 2019, when ISU had dropped below 60 cps, Forager were less bullish:  FOR August 2019 Monthly Report.  At that point ISU was still FOR's 3rd largest portfolio position and represented 7.2% of their fund.

There's plenty more, however ISU is now trading at 28c/share and has just been fined $8.5 million for misleading consumers in relation to energy plans - see here:


"iSelect slapped with $8.5m fine for misleading consumers"

by Ronald Mizen, reporter, AFR. [October 8th, 2020]

Product comparison website iSelect has been slapped with an $8.5 million fine by the Federal Court for making misleading representations about its electricity price comparison service.

The consumer regulator commenced proceedings against iSelect in 2019 for telling consumers it would compare all electricity plans offered by its partners and recommend the most suitable or competitive plan.

The Australian Competition and Consumer Commission said that in reality, iSelect had limited the number of plans that could be uploaded to its website.

It also failed to adequately disclose that cheaper plans from preferred retail partners were available only via its call centre.

The ACCC said thousands of consumers who visited iSelect's website between November 2016 and December 2018 were misled.

“iSelect was not upfront with consumers that it wasn’t comparing all plans offered by its partner retailers," ACCC chairman Rodd Sims said.

"About 38 per cent of people who compared electricity plans with iSelect at that time may have found a cheaper plan if they had shopped around or used the government’s comparison site Energy Made Easy."

iSelect also admitted that between March 2017 and November 2019, it misrepresented the price of some plans it recommended to almost 5000 consumers, resulting in some of them paying up to $500 more a year than quoted.

“iSelect’s misleading conduct may have caused some consumers to switch electricity providers or plans on the basis of a price that was understated or without being aware that a cheaper plan was available,” Mr Sims said.

The $8.5 million penalty was approved by the Federal Court after iSelect and the ACCC made joint submissions in which iSelect admitted liability.

In a statement to the ASX, iSelect, which has a market capitalisation of $65 million, said the submissions acknowledged there was no evidence the misleading conduct was deliberately intended to break the law.

"I am pleased that we are now able to put this matter, along with a number of other legacy issues, firmly behind us and move forward," Brodie Arnhold, who took over as chief executive of iSelect in late 2018, said.

iSelect shares rose 13.3 per cent in afternoon trading after the annoucement.

--- ends ---

That +13.3% move was from 30 cps to 34 cps.  They've since traded as high as 37 cps, but are now back at 28 cps (close on 20-Nov-2020).

At the end of March 2020, ISU was FOR's 5th largest position, worth 5.1% of their fund.  

In their February 2020 report they said:

"Insurance comparator iSelect’s (ISU) result was no worse than its September guidance, but that doesn’t make it good. Regulatory changes in the electricity retailing market have whacked that division’s profits and advertising on Google continues to get more expensive. The first half of the year is always quiet for iSelect but, unlike last year, the company lost money. Corporate action remains likely, but iSelect won’t be negotiating from a position of strength."

At that point, ISU had dropped out of FOR's top 5, but they were back in by March 31, at #5.

In their June report - see here:

- FOR disclosed that ISU had been their 2nd worst performer during FY2020, being responsible for 5% of their underperformance.  The only stock that did more damage was Thorn Group (TGA) which alone cost investors 5.4% of the portfolio as its share price (SP) fell 71% over the year.  ISU's SP had fallen by a similar 67%.  FOR said:

"This time last year, iSelect (ISU) was looking like a profitable investment. It had been one of the few positive contributors in 2019. In the 2020 financial year, its share price fell 67%. As one of our largest investments, that made for a portfolio hit of 5.0%.

"The fall was severe punishment for a company with net cash on the balance sheet and a large receivables balance from credit-worthy insurance companies.

"Changes to the electricity retail market didn’t help, but iSelect’s core health comparison service seems to be losing relevance among consumers. Competitor Compare the Market continues to creep up the share register, reducing iSelect’s strategic opportunities. And its cash balance is slowly dwindling.

"The company’s experienced board and management team are well aware of the issues and are considering a number of opportunities that would change the downwards momentum. This business has a strategic value well in excess of its tangible asset backing, while the latter is already much more than the share price. We need to see some action for the sharemarket to recognise it."

FOR have not mentioned ISU in any of their reports since then, and ISU have not appeared within their top 5 holdings for any single month since March this year.  However, based on that bullish commentary from them in their June report, I would imagine they still hold ISU, just not in as larger quantities as before.

My view is that ISU is a very POOR quality company, with a very inferior business model.  They have been caught doing the wrong thing (hence the recent $8.5m fine) and they're on the nose with investors.  Forager specialise in deep value plays like this, and they don't sell out of a position easily.  That doesn't nescesarily mean that ISU is a good investment from here however.  Remember - FOR lost -18.36% in FY20, underperforming their index by -11.15%.  While their performance has improved in the past few months, that is not on the back of companies like ISU.

I hold Forager's Australian Share Fund (FOR) for a number of their other investments - like MAI & RUL - their top two positions (at 31-Oct-2020), representing 7.9% and 7.3% of their fund respectively, as well as MAH (which I also hold), and I've been prepared to overlook their investments in companies like ISU and TGA - so far.  However, to be honest, I'm looking for a good exit point for my FOR position at the moment.  I have already sold them off my scorecard (back in June).  I'm coming around to the realisation that I can probably do better by investing directly in their winners, and avoid exposure to the dogs in their portfolio - like ISU.  

I'm not saying there's no upside in ISU.  There well might be.  However there's certainly also significantly more downside risk, in my personal opinion.  If a company is a bad company with a poor business model and a very poor track record, do NOT underestimate how low they can go.  The answer is always: Zero.  That's how low they can go.  Zero.  For a 100% loss.  And that's the risk.

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#Substantial Holders
Last edited 4 months ago

6 Aug 20: Forager Funds increases its holding to 11.04% from 8.53%. They bought 5m shares for $1.03m on 3 Aug 20.

5 Aug 20: Burgundy Asset Management reduced their holding to 6.00% from 7.13%

27 Jul 20: Thorney increased its holding to 13.23% from 11.04%.

11 Jun 20: Quest Asset ceased to be a substantial holder

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#Proposed Takeover not proceedi
Added 4 months ago

3 Aug 20: In July, IHA, the 28% shareholder and competitor were in discussions with the ISU board and proposed a takeover offer at $0.40 cash.  But IHA would not proceed with the proposed offer as terms such as a material adverse change condition could not be agreed on.

July 2020 EBITDA of $1.5m, an improvement of $0.6m over July 2019.

Exits iMoney investment for a nominal value.  No further obligations or liabilities.  This has been a very poor investment for ISU.

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