Smartgroup shares in reverse on vehicle order delays

Smartgroup shares in reverse on vehicle order delays

Photo: Goiwara, via Pixabay.

Vehicle supply disruptions and consumer confidence issues have overshadowed an otherwise positive set of financial results for fleet management company Smartgroup Corporation (ASX: SIQ), pushing down shares by around 13 per cent by noon.

The Sydney-headquartered company has reported a 16 per cent year-on-year rise in net profit after tax (NPAT) to $30.9 million for the June half, and a slight uptick of 4 per cent in revenue to $113.6 million.

However, disruptions have lengthened sales lead times with the excess pipeline of future settlements increasing by $2 million since the end of 2021, leading to marginal declines in the number of novated leases under management and managed fleet vehicles. This trend continues in FY23 and this pipeline is set to grow further from the $14 million mark reported for 30 June.

These numbers fell even though leasing leads were up 15 per cent on the December half - a rise Smartgroup attributes to the success of new digital assets such as a novated leasing calculator.

In contrast to the uplift in leads, getting sales over the line has become tougher for Smartgroup due to impacts to consumer confidence from rising interest rates and inflationary pressures on households. This has meant vehicle orders are in line with the previous half but down 7 per cent year-on-year.

The group recorded organic growth of approximately 5,500 salary packages for the half year, and now serves a total of 383,000 customers across Australia.

"We have been able to deliver a good financial result for the half year, despite lengthening vehicle delivery timeframes and we continue to have success in increasing our level of engagement with potential customers via both digital and non-digital channels," says Smartgroup CEO Tim Looi.

"Like all businesses in Australia, we are experiencing some wage inflation. It’s good to see the growth in vehicle leads as we roll out our digital assets, but the impact of interest rate rises on consumer confidence is leading to an extension to the timeframe for customers to proceed to a vehicle order.

"The second half of 2022 will see us onboard a number of new clients, including one client with circa 6,000 salary packages, partially offsetting the non-renewal of Department of Education and Training Victoria, whose transition out will occur later in the year."

Looi asserts the business is in good shape.

"While we face some short to medium term macro-economic and industry-wide headwinds, we have a resilient business model and our operational performance is strong, so any improvement in these external factors should have a positive impact on our business," he says.

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