SIQ - leading providers of employee benefits and workforce optimisation services

Smartgroup Corporation (SIQ) – Is an Australian company that operates mainly in three segments: Outsourced administration, Vehicle services and Software, distribution and group services (SDGS). It is one of Australia’s leading providers of employee benefits and workforce optimisation services for the government, health and corporate sectors.

It looks after salary packaging, novated leasing, fleet management, vehicle buying, workforce management and share plan administration. It does this via its portfolio of brands including Smartsalary, Smartleasing, Smartfleet, Smartequity, Autopia, Selectus, Advantage Salary Packaging, AccessPay, PBI Solutions, Health-e Workforce Solutions and Autogenie.

It provides services primarily to employees of State and Federal Government departments, Public Benevolent Institutes and corporate employers. The company has a strong reputation in the corporate market and manages 3000 vehicles across the country.

Unconventional View:

We last wrote about this stock more than a year ago (click here) when it was trading around $5.89. It’s up a good 50% if you bought back then. We still think there is further upside from where it is today following a record HY Result. The majority of this year’s gain came in August following the release of its half-year results.

The regulatory environment remains stable and it’s doubtul that there will be any hiccups going forward. If you remember back a few years the Rudd government planned to abolish the fringe benefits tax for employer provided cars causing a near crisis for fleet management companies. That’s all done and dusted.

SIQ has delivered stellar organic growth and is driving operational efficiencies. It purchased Autotopia which is a logical fit and there are relative revenue synergies along with RACV Salary Solutions for $27m and Aspire for $5.6m. All these acquisitions complement the business and were done at an attractive price/term.

Once again we like the story and the fundamentals. The stock trades on a PE of 30x, but has a very high ROE of 23.6% which is forecast to grow to 30.26%. It also has a decent yield of 5.10%. SIQ delivered 1H NPAT rise of 63% to $30.3m driven by the acquisition of businesses last year such as Autopia, Selectus and AccessPay. This helped generate strong cashflow and payout a 16.5c divided which was up 68%. Net debt stands at $74m or 77.28% debt/equity ratio. It’s manageable.

Outlook: We think the company is well placed to deliver another year of positive results. All its metrics tick the right boxes and its acquisitions are performing well with integrations on track. Looking at the chart you can see the upside break out following its result. Whilst the stock is in a strong uptrend formation, it has run a little hard since August. We think it’s a great buy but we advise investors to buy on a pullback.

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