The Smartgroup Corporation Ltd (ASX: SIQ) share price is up more than 10% after giving profit guidance.
Smartgroup is a business involved in salary packaging, fleet management and a range of other employee management services for organisations across Australia.
Profit guidance
Smartgroup said that after a stronger second half performance, it expects to report that underlying net profit (NPATA) for the year to 31 December 2020 will be approximately $65 million, including an approximately $1 million after-tax benefit from the repayment of corporate debt.
The profit has been supported by an improved operating EBITDA (EBITDA explained) margin of approximately 44% in the second half of 2020, up from 43% in the first half.
Operating EBITDA is expected to be approximately $47 million for the second half. Improved cost controls helped offset a forecast 3% fall in novated leasing volumes from the first half. The second half result also includes 8% lower yields, reflecting the impact of the previously announced insurance price reductions that became effective on 1 July 2020.
Smartgroup said that the number of salary packages and novated leases under management are forecast to be in line with the first half of 2020.
Management comments
Smartgroup Managing Director and CEO Tim Looi said: “We expect to deliver an encouraging full year profit result demonstrating the resilience of our business in a challenging operating environment.
“We are seeing a positive trend in the number of novated lease enquiries and settlements in respect of new vehicles.
“However, we remain cautious. The current environment is fragile with the potential for further economic disruption due to COVID-19 public health responses and the potential knock on effects these may have on consumer confidence and our business.”
Summary thoughts
Smartgroup’s share price has recovered back to where it was at the start of 2020. Is it worth buying today? I’m not sure, I don’t know enough about the industry and I’m not sure how much growth potential there is.
I’d prefer to invest in something where I have a much greater understanding of the potential growth and the operating leverage is stronger, such as a business like Pushpay Holdings Ltd (ASX: PPH).
