Smartgroup Corporation Ltd. (ASX: SIQ)

SIQ provides employee benefits and administration support services such as share plan administration, payroll administration, fleet management, novated leasing, amongst others. It conducts operations through segments - Outsourced administration, Vehicle Services, and Software, Distribution and Group Services.

Full-Year FY21 Performance Highlights:

• SIQ progressed with satisfying results. Its revenues improved by 3% to $221.8 million in FY21, and it had posted operating EBITDA of $103.0 million, up by 8% over PcP.
• It had onboarded 17,000 additional salary packaging customers despite the ongoing pandemic. And of these about 8,500 are from the healthcare sector.  
• Novated leasing vehicles orders surged by 14% YoY with open vehicle lease orders reached to $12 million of future revenues.
• SIQ continues to generate strong net operating cash flows of $78.3 million, which translate to 113% of NPAT. And it had nil debt on its balance sheet.
• Due to strong results, SIQ board has declared an ordinary dividend of 19 cps (fully franked) and a special dividend of 30 cps (fully franked). This brings the total dividends at 72 cps payable on March 23, 2022. And the record date is set as March 9, 2022.

Key Risks: The ongoing supply chain disruptions may affect its novated leasing business. An increase in customer churns as a result of the pandemic and bleak geopolitical outlook may affect profitability.

Outlook:  It had initiated the Smart Future program with an aim to simplify the operations and seamlessly invest in digital customer experience. The program also helps to increase leads to novated leasing business.

Valuation Methodology: P/E 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: The stock of SIQ delivered a positive return of ~4.8% in the past three months and ~+9.0% in the past six months. The stock is currently trading above its 52-weeks’ low-high range of $5.820-$9.990. The stock has been valued using the P/E-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). The company might trade at a slight discount than its peers, considering the impact of supply chain disruptions on its novated leasing business. For this purpose of valuation, a few peers like Mcmillan Shakespeare Ltd (ASX: MMS), SG Fleet Group Ltd (ASX: SGF), APM Human Services International Ltd. (ASX: APM), and others have been considered. Considering the rally in share price, geopolitical tensions affecting new customer wins, downside indicated by the valuation, and key risks associated with the business, we recommend investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $8.310, as of 18 February 2022, 02:53 PM (GMT+10), Sydney, Eastern Australia.

SIQ 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 for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

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