Smartgroup Corporation Limited (ASX: SIQ)
Smartgroup Corporation Limited
ASX:
SIQ
Smartgroup Corp. Ltd. engages in the provision of employee benefits and workforce optimization services. It operates through the following segments: Outsourced Administration, Vehicle Services, and Software, Distribution and Group Services (SDGS). The Outsourced Administration segment includes salary packaging administration, leasing, and share plan administration. The Vehicle Services segment provides end-to-end fleet management services. The SDGS segment offers salary packaging software solutions, distribution of vehicle insurances, and information technology services. The company was founded in 1999 and is headquartered in Sydney, Australia.
Stock Performance Profile:
(Source: TradingView) One-Year Performance Profile of SIQ compared to ASX 200 (XJO).
From the company reports:
H1 2024 Highlights:
Smartgroup Corporation Limited (ASX: SIQ) recently announced strong financial results for the first half of 2024, showing solid growth across key metrics.
Revenue for the period reached $148.5 million, marking a 27% increase over the prior corresponding period (pcp). Operating EBITDA rose 20% to $56.2 million, while the EBITDA margin, excluding costs associated with implementing a South Australia government contract, stood at 40%, representing a slight improvement from the prior half. The reported EBITDA margin was 38%.
Additionally, Net Profit After Tax and Amortisation (NPATA) grew by 16% to $34.1 million, with statutory net profit up 18% at $34.3 million.
The company demonstrated strong cash generation, with operating cash flow reaching 108% of NPATA, highlighting Smartgroup’s efficient cash management.
Its balance sheet remains robust, with low net debt at just 0.5 times EBITDA, underscoring its financial flexibility.
The company also declared an interim fully franked dividend of 17.5 cents per share, signaling confidence in Smartgroup’s ongoing performance and shareholder returns.
Financials:
(Data Source: TradingView. Graphic Source: Pristine Gaze)
Smartgroup faced a notable downturn in 2020, with revenues falling from $249 million in 2019 to $216 million, and earnings declining from $61.4 million to $41 million. However, by 2023, the company had fully rebounded, achieving record-high results. Revenue climbed to $251 million, and earnings reached $61.92 million, marking a new peak in Smartgroup’s financial performance. This recovery underscores the company’s resilience and adaptability, positioning it well for future growth after a challenging period. The improved return metrics as seen through the increasing ROE in recent years also remains encouraging towards the company’s growth.
Growth Catalyst:
(Graphic Source: Company Reports)
Smartgroup’s recent growth has been driven by notable increases in its core operations and market demand trends. The company saw a substantial rise in the number of novated leases under management, climbing from 58,300 in the first half of 2023 to 64,600 by the first half of 2024. Additionally, the number of fleet-managed vehicles increased from 26,200 to 30,600 over the same period. This expansion underscores Smartgroup’s ability to scale its operations effectively, meeting the demands of a growing customer base. Market dynamics, particularly the increasing adoption of electric vehicles (EVs), are further bolstering growth for the company. With the EV trend expected to continue, Smartgroup is positioned to capture new leasing and fleet management opportunities, reinforcing its market position and supporting future financial growth.
Outlook:
Smartgroup’s outlook remains positive, bolstered by ongoing growth in its contract book, which is anticipated to support further sales and profitability gains. The company’s focus on operational improvements, particularly in delivery timeframes, aligns with this growth trajectory. Although delivery times have improved, they remain slightly behind pre-COVID levels, highlighting an area for potential efficiency gains. As Smartgroup continues to refine its processes, strengthen its service offerings, and capitalize on the demand in its contract book, it is well-positioned to sustain its financial momentum and enhance shareholder value over the coming periods.
Technical Analysis:
(Graphic Source: TradingView) Smartgroup Corporation Limited (ASX: SIQ) Weekly Time-Frame (WTF) Chart.
SIQ, although currently trading beneath its exponential moving averages (EMAs), demonstrates potential for a medium-term trend reversal as it rebounds from its lower Bollinger bands. Additionally, the security’s relative strength index (RSI) is stable at 39.40, indicating significant selling pressure while also suggesting substantial potential for upward movement.
Analyst’s Take:
Smartgroup Corporation Limited presents an appealing investment case, having successfully recovered to pre-COVID levels in both revenue and earnings. Despite achieving record financial performance, SIQ’s stock trades below its peak prices seen in 2018 and 2019, which may signal a potential undervaluation. With revenues and earnings on track for new highs by year-end 2024, the company is poised for significant growth, positioning it favorably in the market. The recent decline in valuation offers an attractive entry point for investors, with the price-to-earnings (P/E) ratio dropping from historical levels of 18-20x to a more affordable 14.9x. Furthermore, the robust dividend yield of 6.42% enhances SIQ’s appeal as an income-generating investment. This combination of growth potential and strong dividend yield makes SIQ a compelling opportunity for both value and income-focused investors.
As per Pristine Gaze, you may consider a “Buy” on “Smartgroup Corporation Limited” at the closing price of “$7.71” (As of 6 November 2024).
*All currency figures are in Australian Dollars unless stated otherwise.
*All data sourced from Company Reports and TradingView.
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