iSelect Shares Drop 40% in Early Morning Trade

The first week of 2016 trading is already in the books. There have been winners and losers. And iSelect [ASX:ISU] has gravitated towards the latter. Shares climbed last Monday to a high of $1.20. But the run was short lived. Share values proceeded to drop 8.33% to close the week at $1.10.

But shareholders are not out of the woods yet. ISU has traded down 40% this morning. An announcement surrounding earnings has made a bad start worse for 2016.

iSelect graph

Source: Yahoo finance

Strategic plan in shambles

Benjamin Franklin popularised the quote, ‘By failing to prepare, you are preparing to fail.’ ISU don’t seem to be familiar with the quote, as their failure to prepare has cost millions. In an announcement this morning, ISU revised earnings down an enormous 39%. And it was all due to planning issues.

ISU pointed to several strategic and operational issues as causes of the downgrade. One of the main issues related to staffing levels. The high levels of employees added to expenditures when sales were seasonally low.

Even with the added staff, ISU was not able to increase sales. Health insurance sales are also down, adding to the earnings reduction.

So why are ISU’s strategic plans in shambles? It’s because of ISU’s ever-changing executives. The constant change in ISU directors has not only left shareholders confused, but employees as well. Current CEO, Scott Wilson knows it will be a battle to completely overhaul past decisions. But Wilson is optimistic for the future. Wilson commented on the downgrade:

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.

iSelect’s solutions going forward

 

There are a number of key strategic initiatives that Wilson believes will return ISU to normal trading levels in the second half of FY16. All will be in hopes of boosting struggling sales.

Customer Service:

ISU will be focusing on customer service improvements. The improvement will hopefully convert health insurance sales. Providing a more enjoyable experience for customers could be the answer to boosting sale.

Branding change:

ISU is also hoping a change to branding will see sales increase. You might remember the quirky advertisements of ISU. Well it seems the company is planning to deliver completely new branding. ISU said it’s eager to capture a more diversified client base, and rebranding will hopefully champion this change.

Employee training:

Staff training will not be taken lightly. ISU has stated that the ‘iSelect Academy’ will undergo huge changes. The academy will be tailored towards improving customer relations. Yet it’s more likely that the change, like those above, will boost sales.

If you can tell there’s a reoccurring theme here.  ISU need to increase sales if Mr Wilson’s projections are to prove true.

What to do about iSelect’s shares

Going forward ISU will need all the proposed changes stated above. Mr Wilson seems confident in achieving the overhaul. I would argue differently. Wilson was recently appointed in October, and could be trying to make a statement here by turning the situation around. But how much can things change in a matter of months?

Since my appointment, a number of changes have been implemented which have provided positive momentum’, Wilson said. But I’m not sure things will change so quickly.

Wilson expects trading to return to normal in the matter of months. It seems like he thinks earnings was only revised by 5%, rather than 39%. Wilson also needs reminding that share value has also taken an enormous dive.

If I were him I would push the timeline towards FY17 rather than FY16. But the fact remains the same. ISU needs a change, and shareholders are hoping Mr Wilson’s predictions will pull through in the coming months.

Härje Ronngard,

Junior Analyst, Money Morning


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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