Smartgroup Corporation Ltd (ASX: SIQ)

SIQ Details

Growth based on acquisitions: Up 1.14% on January 16, 2018, Smartgroup has recently completely acquired Fleet West Pty Limited. Fleet West generated revenue of c.$3.5 million and c$1.5 million of EBIDTA in FY17. Smartgroup acquired 100% of share capital of Fleet West for $8.0 million of cash and $1.0 million of shares and with 50% of the shares escrowed until the end of March 19 and the remained until the end of March 2020. Post-acquisition, Fleet West expects to contribute c.$2.2 million of EBIDTA in CY18 which excludes the one-off IT and integration costs of c$0.7 million. 2018 EPS accretion is expected to be c.2%.  The acquisition has been funded from cash reserves and the group also extended its debt facilities for the same. SIQ now expects to generate CY17 NPATA of $64.0 million, which was an increase of 45% on the prior year. This strong performance was driven principally by the achievement of synergies which were expected from the acquisitions of AccessPay, Aspire and RACV Salary Solutions completed last year. Smartgroup also extended its services to the not-for-profit sector. Not-for-profits represents c.50% of the Smartgroup’s total client base of c.3,500 clients.
 

Offering to Not-for-profits Sectors (Source: Company Reports)
 
SIQ’s results for CY17 are expected to be out in February 2018. As on 30 June 17, its total assets were worth $416 million against $438.6 million as on 30 June 16. On the other hand, the total liabilities as on 30 June 17 were $220 million against $244.3 million as on 30 June 16. So, the net debt as on 30 June 17 was $74.3 million against $72.0 million as on 30 June 16 and the net debt excludes the borrowing cost which was capitalised (of the order of $1.5 million) and is more or less unchanged since 31 December 16 due to a final dividend payment of $18.2 million which got paid in March 17 and also excluded a cash payment of $14.7 million which was made to acquire AccessPay in May 17. Meanwhile, SIQ also acquired few other Groups like Autopia and Selectus. Post-acquisition, Selectus recorded an EBIDTA of $14.7 million as on 30 June 2017 but it was excluding all the synergies.

In the last three months, the stock has hit a new 52- week high reflecting a significant uptrend with a run-up of 79.8% in one year (as at January 15, 2018). Its Return on Equity (ROE) and return on capital have been improving and have been better than sector average. It is one of the largest commercial and professional Service Companies in Australia that soared from $1.46 at end of 2014 to close to about $11.5 at the start of 2018. Looking at the trading scenario and upside from catalysts already factored in the stock price, it may be time to reap profits. We give a “Sell” on the stock at the current price of $11.55


SIQ Daily Chart (Source: Thomson Reuters)

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