Smartgroup shares accelerate as profit and dividends spike

Shares in fleet management company Smartgroup Corporation (ASX: SIQ) accelerated to a new high for the year thus far as the company posted a 42 per cent increase in annual net profit to $58.8 million and rewarded shareholders with a 30c special dividend.

Smartgroup, which provides specialist employee management services such as salary packaging and fleet management for government and business, achieved the result for calendar 2021 despite a modest 3 per cent lift in revenue to $221.8 million.

The company says the result was driven by disciplined cost management that pushed EBITDA margins two percentage points higher to 46 per cent, while a sharp fall in amortisation of intangible assets also contributed to the result.

Shares in Smartgroup surged by almost 11 per cent in morning trade, taking them to a high of $8.18. The shares are still well below the 12-month high of $9.99 achieved in September when the company was subject of a proposed $1.4 billion takeover bid by TPG Capital and Potentia Capital which was later withdrawn.

The outfit's fortunes have been supported by the renewal of eight contracts among its top 20 clients that fell due during the year. This includes its largest client, the Department of Defence, which has renewed its contract for five years to June 2026.

Smartgroup’s client base is largely involved in the health, not-for-profit, education and government sectors, all of which are identified by the company as growth areas.

New novated leasing orders also rose 14 per cent with the pipeline of future settlements representing about $12 million of additional revenue. Open vehicle lease orders are now 152 per cent higher than this time last year.

Smartgroup credits its Smart Future program, which was implemented in the last quarter of 2021, for driving its improved operational performance. Smart Future is designed to enhance digital platforms and streamline operations.

“I am not only pleased with our strong financial results this year but am also positive about the foundations our Smart Future program has built for future EBITDA and business growth,” says Smartgroup CEO Tim Looi.

“In the first few weeks of trading in 2022, our novated leasing leads are up by 8 per cent compared to the same period in 2021. Our key digital deliverables from Smart Future are on track and our investments in people, processes and technology are delivering results that will continue through CY 2022.”

Chairman Michael Carapiet says Smartgroup’s solid performance despite the ongoing impacts of COVID-19 has justified the increased final payout to investors.

“The company generates high quality earnings from a diversified customer base operating in growing sectors and with relationships based on long-term contractual arrangements,” he says.

Smartgroup is paying a fully franked final ordinary dividend of 19c per share in addition to the fully franked special dividend of 30c. The full-year payout of 66.5c represents a yield of more than 8 per cent for investors based on the current share price.