Company Overview: SG Fleet Group Limited (ASX: SGF) provides vehicle fleet management, vehicle leasing, short-term hire services, financing of consumer vehicles and salary packaging services. The Group’s operations are spread out in the geographies of Australia, New Zealand and the United Kingdom.

SGF Details

Resilient Performance in FY21 Driven by Improvement in Win Rates: The company delivered a strong performance in the corporate segment with multiple contract extensions and an improvement in the tender rate. It has adopted a digitised and revitalised marketing approach to provide an enhanced digital customer experience in the Novated segment.

Update on Tenders & Products:

• The company has reported an increase in product penetration to 96% of top customers who take up multiple products as of August 2021, an increase from 76% in the H1FY21 period.
• The evolution in products and services supports the company’s plan to shift towards a recurring revenue profile.
• It has also reported a rise in tender activity and business opportunities with 82% Novated win rate in H2FY21, compared to a level of 69% in H1FY21. Corporate wins rate grew to 52% in H2FY21, compared to 44% in H1FY21.
• The Group reported 60 tender submissions, which have been awaiting for decision as of August 2021.

View on FY21 Performance:

• The company reported an increase in revenue by 6.4% to $482.1 million in FY21, compared to $452.9 million in FY20. The growth has been aided by vehicle orders in H2FY21, which were consistently above pre-COVID levels.

• Operating EBITDA improved by 27.3% to $94.7 million in FY21.

• Underlying NPAT grew by 41.8% to $51.6 million in FY21, driven by disruption in new vehicle supply chain and also aided by demand for used vehicles.
• It ended the period with cash & equivalents of $231.11 million as of 30 June 2021, compared to $111.11 million as of 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Acquisition of LeasePlan Australia and New Zealand:

On 1 September 2021, the company has announced the successful completion of the acquisition of the businesses of LeasePlan Australia and LeasePlan New Zealand. The deal has been valued for a cash consideration of ~$273 million and a 13% equity interest in SG Fleet. The management of both companies believes that the transaction will create synergy in operations in the future.

Top 10 Shareholders: The top 10 shareholders together form around 76.40% of the total shareholding, while the top 4 constitute the maximum holding. Bluefin Investments Ltd. and Gunning (Tex) are holding a maximum stake in the company at 52.29% and 13.04%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company reported an improvement in the overall margin performance during FY21. ROE improved to 13.5% in FY21, compared to 13.2% in FY20. The cash cycle stood at negative 41.6 days during the year.   

         

 Profitability Metrics and Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Financial Risk: The Group’s activities expose it to a variety of risks which include interest rate risk, foreign currency risk, credit risk and liquidity risk.
• Credit Risk: The Group is prone to credit risks in scenarios where the counterparty might default on its contractual obligations and payments.
• Liquidity Risk: The company is faced with liquidity risk in terms of funding or access to borrowings in order to have a comfortable cash profile and working capital needs.
• Impairment Risk: It is also prone to the risk of impairment of its assets.

Outlook:  SGF has reported a decent outlook with an increase of over 25% in orders during FY21. At the financial year-end, the order pipeline of the company has almost doubled on a Y-o-Y basis, which might push significant delivery volumes into FY22. In view of the company's approach towards low emission vehicles, it has increased its holding in LEV/ZEV vehicles in ANZ Fleet. The company’s products and offerings are being rapidly integrated into Mobility-as-a-Service (MaaS) capabilities, which will provide increased flexibility of vehicle usage going forward. Moreover, the acquisition of LeasePlan puts the overall business in a favourable position to expand its subscription base and provide compelling products to its customers.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of SGF is trading above its average 52-weeks’ levels of $1.346-$3.290. The stock of SGF gave a positive return of ~9.02% in the past six months and a negative return of ~9.33% in the past three months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at some premium to its peers' median, considering the synergy in business from the acquisition of LeasePlan, decent pipeline of orders, and optimistic outlook. For the purpose of valuation, few peers like Mcmillan Shakespeare Ltd (ASX: MMS), Smartgroup Corporation Ltd (ASX: SIQ), Mader Group Ltd (ASX: MAD) have been considered, which comes under Commercial Services & Supplies. Considering the indicative upside in valuation, decent financial performance, growth in cash levels, completion of the acquisition of LeasePlan and increase in demand with an expected recovery in the economy, we recommend a 'Buy' rating on the stock at the current market price of $2.700, down by 0.370% as on 14 September 2021.

SGF Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

---

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.