Smartgroup Corporation Limited

Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Smartgroup Corporation Limited (ASX: SIQ) is engaged in the business support services business and offers a range of services such as salary packaging administration, fleet management, leasing services to institutions and other services to customers across Australia.

 1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~29.97% of the total shareholding. Colonial First State Investments Limited and River Capital Pty. Ltd. are holding a maximum stake in the company at ~4.93% and ~4.86%, respectively.

1.4 Key Metrics: The company has reported a growth in net margin from 24.3% in 1HFY21 to 27.2% in 1HFY22. Further, the revenue improved by 4% from AUD 109.4mn in 1HFY21 to AUD 113.6mn in 1HFY22. Below is captured the trend of the asset turnover ratio and operating margin:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Results Highlights of 1HFY22: During 1HFY22, the operating cash flow stood at 134% of NPATA, depicting a high cash flow generation capability of SIQ. The company reported cash & cash equivalents of AUD 32.85mn at the end of 30 June 2022, which increased from AUD 32.45mn reported at the end of 31 December 2022s.

2.3 Business Strategy: During 1HFY22, the company progressed to build different phases of digital assets to drive its future earnings. SIQ launched the new Smartsalary website in late July and is expected to launch phase 1 of the Vehicle Sale portal in late 2022. The company also launched the Smart Future program in May 2021, under which SIQ priorities Vehicle Sales Portal (phase 1), salary packaging calculators, client’s portals and customer portals and applications.

2.4 Dividend History: The company declared the fully franked interim dividend of AUD 17.0 cents per ordinary share, reflecting a payout ratio of 70% of NPATA.

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

4.2 Fundamental Valuation

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is October 6, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

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

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