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Smartgroup Corporation Ltd

Team Veye | 29 Dec 2020 ASX - SIQ
Smartgroup Corporation Ltd
Call Buy
Asx SIQ

Smartgroup Corporation Ltd (ASX: SIQ) is an Australia-based company that offers a range of employee management services including salary packaging, novated leasing, fleet management, payroll administration, employee share plan administration and workforce optimization. The Company’s segments include Outsourced administration (OA), Vehicle services (VS) and Software, distribution and group services (SDGS). The OA segment provides outsourced salary packaging services, novated leasing, share plan administration and outsourced payroll services. The VS segment provides end-to-end fleet management services. The SDGS segment provides salary packaging software solutions, the marketing of salary packaging debit cards, distribution of vehicle insurances and workforce management software to the healthcare industry (Profile source: Reuters)

From the Company Reports

Earnings guidance for the full year ending 31 December 2020

Smartgroup Corporation Limited (ASX: SIQ) on 23 December 2020 provided the following update in relation to its earnings expectations for the full year ending 31 December 2020 (CY2020).

(Chart source: TradingView)

Following a stronger second-half performance, Smartgroup expects to report CY2020 NPATA1 of approximately $65m, including a c.$1m after-tax benefit from the repayment of corporate debt. This guidance is an estimate only and remains subject to the annual audit process.

Profit performance has been supported by an improved operating EBITDA margin of approximately 44% in the second half of 2020, up from 43% in the first half. Operating EBITDA is expected to be approximately $47m for the second half. Improved cost controls helped offset a forecast 3% fall in novated leasing volumes from the first half. The second half result also includes 8% lower yields, reflecting the impact of the previously announced insurance price reductions that became effective 1 July 2020.

(Chart source: Barchart)

Q3 2020 business update

Stable operational performance

  • 355,600 packages vs 355,500 in June 2020
  • 67,250 novated lease car park vs 67,500 in June 2020
  • 24,700 fleet vehicles under management vs 24,500 in June 2020
  • 634 FTEs vs 624 in June 2020 including contingent workforce

 Resumption of normal business operations

  • Adelaide and Perth return to office completed, with Brisbane in the coming weeks
  • Flexible working arrangements for teams in place
  • Client site visitations continuing to increase

Continued simplification and business improvement

  • Continued progress towards packaging simplification
  • Technology systems consolidation

Other

  • Revised insurance supply agreement executed
  • 2020 Federal Budget

(Graphic Source – Company Reports)

Smartgroup announces $32.1m profit, declares fully franked interim dividend of 17.0 cents

Smartgroup Corporation Ltd (ASX: SIQ), a specialist employee management services provider, on 19 August 2020 reported its financial results for the half-year ended 30 June 2020.

Profit after tax, as measured by NPATA, was $32.1 million for the half year, in line with market guidance provided on 10 June 2020 and 21% down from the prior corresponding half year. Revenue at $111.4 million was down 11%.

Smartgroup’s net debt of $12.2 million on 30 June 2020 represents net debt / EBITDA of c.0.1x.

H1 2020 NPATA in line with guidance

Financial results in line with guidance

  • H1 2020 revenue of $111.4m
  • H1 2020 EBITDA of $48.4m
  • H1 2020 NPATA of $32.1m vs. guidance of c.$32m

(Graphic Source – Company Reports)

Resilient performance against COVID-19 backdrop

  • More than 90% of 2020 client renewals already completed (based on top 20 clients by revenue)
  • 355,500 total packages and 67,500 novated leases in car park (down c.1% vs. 31 Dec 19)
  • Fleet vehicles under management stable at 24,500 vehicles

Continued simplification and business improvement

  • Retirement of the Selectus platform
  • Restructure of operational workforce effective June 2020
  • Expansion of panel of funding providers

Strong cashflow generation with net debt / EBITDA of 0.1x

  • Adjusted after-tax operating cash flows at 112% of NPATA
  • A fully franked interim dividend of 17.0 cps, representing a dividend payout ratio of 70%
  • Net debt of $12.2m at 30 June 202

 

Smartgroup Corporation Ltd (ASX: SIQ)
Stock Overview
Sector Commercial & Professional Services
Risk Medium
Market Cap $923.1 million
Share Volume 132.82 million
EPS (FY) $0.372
PE RATIO 18.7
Yearly Dividend Yield  5.54%
Target Price (s) T1 $8.70 T2 $10.80
Stop Loss $5.90
Recommendation Buy
52 weeks High $7.670
52 weeks Low $3.920
Managing Director Mr Deven Billimoria
Non-Executive Directors Mr Gavin BellNon
Mr Andrew Bolam

 

Market Risk Analysis

The current environment is fragile with the potential for further economic disruption due to COVID-19 public health responses and the potential knock on effects these may have on consumer confidence and its business. Previously announced insurance price reductions that became effective 1 July 2020 also impacted the yield

 

Technical Analysis

The stock has been showing the recovery from the month of November-2020 and is maintaining the upside move till date with a minor downside move in between. As per the technical charts and indicators, the price is trading at the upper band of Bollinger with RSI above 60 and MACD in the positive territory. It is well above 50 and 200 MA on the daily t/f signalling a potential upside move. Levels between $7.06-7.08 play minor resistance level and closing above that can take the stock price further up. If it manages to cross the hurdle at $8.39 convincingly then there could be potential of it hitting the past high levels.

 

Veye’s Take

Like many other businesses, Smartgroup has also seen impacts from the COVID-19 pandemic over the past several months. Smartgroup put in place a range of initiatives to respond to the impacts of COVID-19 and will continue to focus on both safeguarding the well-being of its team members and the continued delivery of high quality service to its customers. Following a stronger second half performance, Smartgroup expects to report CY2020 NPATA of approximately $65m, including a c.$1m after-tax benefit from the repayment of corporate debt. Operating EBITDA is expected to be approximately $47m for the second half. Improved cost controls helped offset a forecast 3% fall in novated leasing volumes from the first half. Smartgroup expects to deliver an encouraging full year profit result demonstrating the resilience of its business in a challenging operating environment. The Company is seeing a positive trend in the number of novated lease enquiries and settlements in respect of new vehicles. Veye recommends a "Buy" on “Smartgroup Corporation Ltd” at the current price of $7.02


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