Eclipx Group Limited

Focus on Core Businesses: Eclipx Group Limited (ASX: ECX) operates in the financial sector and provides vehicle fleet leasing, fleet management, and other diversified financial services.

Financial Highlights: Recently, the company announced its interim results for the six months ended 31 March 2019. The net profit after tax and amortisation for 1H19 amounted to $13.8 million, down 62% from $35.9 million in 1H18. The statutory loss after tax for the period amounted to $120.3 million whereas the prior corresponding period had a profit of $25 million. This statutory loss after tax included $118.4 million after-tax non-cash impairment of goodwill in relation to non-core businesses, Grays and Right2Drive. This value is also inclusive of one-off restructuring costs and costs pertaining to failed merger with McMillan Shakespeare ($10 million post-tax).

Business Performance – Non-Core (Source: Company Reports)
 
The performance during 1H19 was on account of unsatisfactory results in the non-core businesses of GraysOnline, Right2Drive and Commercial Equipment.
The Core Fleet and Novated business reported a stable EBITDA of $40.7 million, down 3% as compared to pcp. Net Profit after Tax & Amortisation for the same business stood at $24.1 million which was down 13% on pcp.

Business performance – Core Fleet and Novated (Source: Company Reports)
 
On the simplification front, the Board has decided to put in place a simplification plan which will entail divestments of non-core businesses namely Grays, Right2Drive and Commercial Equipment, renewal of senior leadership team and right-sizing of the Group cost base. The company will now focus on its core fleet and novated businesses which have showcased stable and strong financial performance over 30 years. The management believes that the core business is characterized by a unique and unutilized set of capabilities relative to its peers and can establish a significant value for the stakeholders.
 
Stock Performance: ECX’s share yielded a return of 9.80% and -44% over a period of 1 month and 3 months respectively. The company has ~319.64 million shares outstanding with the market capitalisation of ~$357.99 million, an annualized dividend yield of 14.29%, and a beta of 0.77x. The company announced its H1FY19 results which were disappointing. However, simplification plan announced by the management have been cheered by the street and hence, the stock saw a strong surge of 19.643% in today’s trade as well after a gain of 29.48% on 31 May 2019. With the simplification plan in place, the company through its core businesses has a good competitive advantage with respect to its peers and therefore, capable of creating a value for its customers and shareholders.

Hence, we give a “Hold” recommendation to the stock at the currentmarket price of $1.340 (up 19.643% on 3 June 2019).
 
 

Zip Co Limited

Profit Booking: Zip Co Limited (ASX: Z1P) is a financial technology company, founded in 2013 with headquartered in Sydney. The company recently updated about the change of interest of its substantial shareholder- Regal Funds Management Pty Ltd and notified the decrease in voting power from 6.21% to 5.12%. In another recent release, the company announced its partnership with Kmart Australia Ltd to offer its customers with Zip interest fee payments. Kmart has a large online presence and operates a national network of over 200 stores with a revenue of more than $6 billion.
 
Financial Highlights for 3QFY19: As per the financial results for the third quarter ending 31 March 2019, the company’s quarterly revenue totalled to $23 million, up 105% on pcp and 20% on q-o-q. The receivables for Q3FY19 amounted to $565.3 million, reporting an increasing of 113% on pcp and 16% on q-o-q. The number of customers also went up to 1.2 million reporting an increase of 86% on Q3FY18 and 14% on Q2FY19. During the period, it showcased a leading credit performance with net bad debts going down from 1.81% in Q2FY19 to 1.75% in Q3FY19.
 
The company also raised an amount of $56.7 million in equity (before costs) to accelerate growth and capitalize the market opportunity. The funds will be used in expanding the current product range, entering new markets for growth, investing in product technology, and customer acquisition. Out of this total amount, $42.8 was raised via placement at $1.53 per share to new and existing institutional investors along with sophisticated and professional investors, $8.9 million was raised from Westpac, and $5 million was raised under a Share Purchase Plan.

 

Key business drivers (Source: Company Reports)
 
Other business advancements:During the March quarter, the company signed a wholesale agreement with Adyen for the purpose of marketing Zip to the Australian clients. Zip was officially launched Zip in New Zealand and reported a strong growth in merchant base with its enterprise partners, including BUPA Health Services, Retail Apparel Group and Chemist Warehouse joining the payments platform.
 
Stock Performance & Recommendation:On the stock performance front, stock yielded impressive returns of 80.79% and 185.71% over a period of 3 months and 6 months respectively. Currently, the stock is trading slightly towards its 52-week high price of $3.980. Thus, we can assume that the company’s stock price has discounted all the positive factors in the present market price. Therefore, we give a “Sell” recommendation on the stock at the current market price of $2.910 per share (down 9.062% on 3 June 2019). 
 

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