Smartgroup
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- Senior Analyst
- Date posted:
- 05 July 2016, 1:54 PM
- Sectors Covered:
- Diversified Financials, Professional Services
Key points
- Smartgroup (SIQ) has acquired Autopia, a specialist novated leasing provider to the corporate sector for A$36m (acquisition multiple of 6.5x June-16 EBITDA).
- The acquisition provides SIQ with a beachhead into the corporate segment, servicing over 300 corporate employers and ~3,000 vehicles under management.
- SIQ expect the acquisition to be ~7% EPS accretive, based on pro-forma FY16.
Acquisition of Autopia Group
SIQ has acquired Autopia Group for A$36m (effective immediately), on an implied 6.5x June-16 EBITDA. The acquisition will be funded via existing cash, debt facilities and A$0.25m in scrip. Post the acquisition, net debt is expected to be ~1.2x EBITDA, which we forecast to be below 0.9x by FY16-end (A$49.3m). In FY16, Autopia delivered revenue of A$11.2m and EBITDA of ~A$5.5m (margin of 49.1%). Autopia was an existing client of Smartfleet (for vehicle maintenance authorisation services) and the current management team will remain in place.
A strong footprint in the corporate sector
Autopia is a specialist provider to the corporate sector, servicing over 300 clients. We view the acquisition as a logical fit, giving SIQ a strong foothold in the corporate sector which diversifies the current client base (predominantly Government, Health sector and Public Benevolent Institutions).
According to SIQ, the business has limited client concentration and a successful track record of customer service. The ~3,000 vehicles under management adds ~9% additional scale to SIQ's vehicle base of 34,000. While no historical growth rates have been disclosed, we view the acquisition as opening up another growth avenue for the group with an established brand and client base to build upon. Management highlighted that 'progressive realisation' of synergies are expected from FY17. In our view, these are likely to be revenue synergies via leveraging SIQ's supplier arrangements (e.g. financing).
Investment view
SIQ is delivering solid organic growth via scale benefits; driving operational efficiency via technology development; and an ongoing focus on its customer centric model. Revenue synergies from recent acquisitions and further acquisition opportunities provide further upside risk in our view.
Downside risks include major contract losses, slower-than-expected novated lease uptake and regulatory change.
We maintain our Add recommendation with an upgraded share price target.
More information
Morgans clients can login to view our share price target and the full report on Smartgroup (SIQ). Alternatively, please contact your nearest Morgans office for access.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.