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:
Smartgroup Corporation Limited (ASX: SIQ) has recently reported impressive financial outcomes for the first half of 2024, reflecting substantial growth across essential performance indicators.
The company’s revenue for this period amounted to $148.5 million, which represents a 27% increase compared to the same period last year.
Operating EBITDA experienced a 20% rise, reaching $56.2 million, while the EBITDA margin, excluding expenses related to a contract with the South Australian government, was recorded at 40%, indicating a slight enhancement from the previous half. The overall reported EBITDA margin was 38%.
Furthermore, Net Profit After Tax and Amortisation (NPATA) increased by 16% to $34.1 million, with the statutory net profit rising by 18% to $34.3 million. The company exhibited strong cash generation capabilities, with operating cash flow amounting to 108% of NPATA, which underscores Smartgroup’s effective cash management strategies.
The balance sheet remains solid, characterized by a low net debt ratio of just 0.5 times EBITDA, which highlights the company’s financial agility.
Additionally, an interim fully franked dividend of 17.5 cents per share was declared, reflecting confidence in Smartgroup’s sustained performance and commitment to shareholder returns.
Financials:
(Data Source: TradingView. Graphic Source: Pristine Gaze)
In 2019, the company reported revenues of $249 million, which subsequently decreased to $216 million, while earnings fell from $61.4 million to $41 million. Nevertheless, by 2023, the organization had made a complete recovery, achieving unprecedented results. Revenue surged to $251 million, and earnings rose to $61.92 million, establishing a new high in Smartgroup’s financial trajectory. This resurgence highlights the company’s resilience and capacity for adaptation, effectively positioning it for future expansion following a difficult period. Additionally, the positive trends in return metrics, particularly the rising return on equity (ROE) in recent years, further support the company’s growth prospects.
Dividend Profile:
(Data Source: TradingView. Graphic Source: Pristine Gaze)
The company exhibits certain variations in its dividend disbursements; however, it is important to highlight that these fluctuations are predominantly influenced by the irregularity of special dividends. In contrast, the regular dividend payments demonstrate a high degree of stability, with only minor annual variations, consistently exceeding the $0.3 mark in total distributions. Furthermore, Smartgroup has experienced a notable decrease in its yields over the last few years, dropping from a five-year peak of 6.20% in 2019 to 3.61% in 2023. Nevertheless, the yield has recently rebounded to 6.35% for investors at present, even higher than its levels recorded in 2019.
Investment Rationale:
(Graphic Source: Company Reports)
Smartgroup has experienced significant growth, primarily attributed to marked enhancements in its fundamental operations and prevailing market demand. The organization reported a considerable increase in the number of novated leases managed, rising from 58,300 in the first half of 2023 to 64,600 by the first half of 2024. Concurrently, the fleet-managed vehicle count grew from 26,200 to 30,600 during the same timeframe. This growth illustrates Smartgroup’s capacity to effectively scale its operations in response to an expanding customer base. Additionally, market trends, especially the rising adoption of electric vehicles (EVs), are further propelling the company’s growth. As the trend towards EVs is anticipated to persist, Smartgroup is well-positioned to seize new opportunities in leasing and fleet management, thereby strengthening its market presence and facilitating future financial advancement.
Outlook:
Smartgroup’s future prospects appear optimistic, driven by the continuous expansion of its contract portfolio, which is expected to facilitate additional sales and profit increases. The organization’s emphasis on enhancing operational efficiencies, especially regarding delivery timelines, is consistent with this growth path. While there have been advancements in delivery times, they still fall marginally short of pre-COVID benchmarks, indicating a potential area for further efficiency improvements. As Smartgroup persists in optimizing its operations, bolstering its service capabilities, and leveraging the demand within its contract portfolio, it is strategically positioned to maintain its financial progress and augment shareholder value in the forthcoming periods.
Technicals:
(Graphic Source: TradingView) Smartgroup Corporation Limited (ASX: SIQ) Weekly Time-Frame (WTF) Chart.
Smartgroup currently exhibits a 14-Day Relative Strength Index (RSI) of 43.25, positioning it near the oversold territory. This level is significant as it reflects a historical tendency for the stock to experience rebounds when approaching similar thresholds. Additionally, the security is demonstrating a rebound from its lower Bollinger Bands, indicating a potential for a trend reversal.
Analyst’s Take:
Smartgroup offers a compelling investment opportunity, having successfully returned to pre-COVID levels in terms of both revenue and earnings. Although the company has achieved record financial results, its stock is currently trading below the peak prices observed in 2018 and 2019, which may indicate a potential undervaluation. With projections suggesting that revenues and earnings are set to reach new heights by the end of 2024, the company is well-positioned for substantial growth, enhancing its market standing. The recent decrease in valuation presents an attractive entry point for investors, as the price-to-earnings (P/E) ratio has fallen from historical averages of 18-20x to a more accessible 15x. Additionally, the strong dividend yield of 6.35% further increases SIQ’s attractiveness as a source of income. This combination of growth prospects and a robust dividend yield renders SIQ an appealing option for both value-oriented and income-seeking investors.
As per Pristine Gaze, you may consider a “Buy” on “Smartgroup Corporation Limited” at the closing price of “$7.86” (As of 22 November 2024).
*All currency figures are in Australian Dollars unless stated otherwise.
*All data sourced from Company Reports and TradingView.
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