Smartgroup Corporation Limited

Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Smartgroup Corporation Limited (ASX: SIQ) is into business support services and is engaged in providing salary packaging administration and novated leasing services to corporates, governments, and charitable organisations. The company also offers fleet management and workforce optimization services to its customers.

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

1.3 Top 10 Shareholders: The top 10 shareholders together form ~29.96% 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 improved its operational efficiency by reporting an operating margin of 40% in 1HFY22 compared to 36.5% in 1HFY21. Additionally, it maintained a liquidity position by recording a current ratio of 0.90x for both periods, 1HFY22 and 1HFY21. Below is captured the trend of Return on Equity and Net margin:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Results Highlights of 1HFY22: The recent 1HFY22 results depicted the growth in total leasing leads by 6% and leasing yield up 5% relative to 1HFY21. Further, the cash and cash equivalents at the end of 1HFY22 increased to AUD 32.85mn from AUD 32.45mn reported at the end of 31 December 2021.

2.3 Summary & Outlook: The company continued to report growth despite economic headwinds, with the ‘Excess’ pipeline of future settlements rising to AUD 14mn in 1HFY22 from AUD 12mn in 2HFY21.

2.4 Dividend History: SIQ shows a clear track record of paying dividends in each financial year. The company issued a fully franked interim ordinary dividend of 17.0 cents per share in 1HFY22 after paying AUD 39.7mn of a special dividend in March 2022.

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

4.2 Fundamental Valuation

Valuation Methodology: Price/Earnings 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 September 1, 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.

Disclaimer

Kalkine New Zealand Limited is a Financial Advice Provider (“FAP”) and is authorised by a Transitional FAP license issued by Financial Markets Authority (“FMA”) to provide financial advice. Kalkine provides only general financial advice through its research reports following a person becoming a member. The reports contain buy/sell/hold and other recommendations in relation to equity financial products. The recommendations and opinions [on this website] / [in this report] do not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions. If you act on the advice in the research reports, you may have to pay fees, expenses or other amounts (but not to Kalkine).  Further information about the complaints and dispute resolution process, as well as information about Kalkine’s duties are available on Kalkine’s website.  Please read our Financial Advice Provider (FAP) disclosure statement and Complaints Handling Guide, which are available on the website.