Growth Focus: Smartgroup Corp. Ltd (SIQ)

by Patrick Taylor

Date of Data Capture: 19/5/2017


Classification: Business Support Services

Current Price: $7.05

Market Capitalisation: $876M

Forecast EBITDA Growth: 32.87%

Estimated Gross Yield: 3.98%

Consensus Price Target: $7.13

# Covering Analysts: 6

Discount at Current Price: 1.13%

Price Target Trend: Increasing

Signal Timeframe: Monthly-Weekly

Trend Bias: Up Flat; Long-Medium

Short-term: Neutral Negative
Medium-term: Positive Neutral
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• SIQ looks to be coming out of a 9 month consolidation after rising 500% over 2 years and while there is some residual negativity in the very short-term timeframe, this stock looks ready to move ahead with excellent momentum building in the medium and long-term timeframes.
• Strong fundamentals back our view with excellent historical earnings performance and further aggressive growth forecast to continue into 2018.
• Currently working through $7.00 resistance with historical peak resistance target just overhead at $7.50 we expect some volatility here but see good support layered down to $6.50, $5.50 and $5.00.

Growth Focus: Smartgroup Corp Ltd

Our primary focus here is capital gain, we will select our stocks from the ASX top 500 All Ordinaries Index.

Sometimes it can be hard to tell whether a consolidating stock with a falling price is legitimately sick or whether it is just more of a sniffle and now offers better value with the declines. We believe we have found the latter with Smartgroup Corporation Ltd (SIQ), a business support services company seemingly ready to come out of convalescence.

Beginning in 1999 as a web-based comparison company, Smartgroup has evolved to become one of Australia’s largest employee benefit and workforce optimisation service providers. Working through their brands Smartsalary, Smartleasing, Smartfleet and SmartEquity, SIQ offers outsourced administration; vehicle services; and software, distribution and group services for blue chip clients like the Department of Defence and the WA Department of Health.

Theirs is a market still maturing and the associated expansionary phase has provided SIQ with opportunities for strong organic growth and also via an aggressive acquisition regime in a fragmentary market. This kind of hungry approach often leads to indigestion and by mid-2016 Smartgroup began to hiccup, first following from the temporary earnings dent of the Autopia acquisition and later with the diluting effects of the fund raising for the Selectus takeover. Expansion often takes time to process before the benefits can be had, and that is what we expect here with excellent fundamental performance and strong forecasting highlighting a company with plenty of room for recovery - especially with the gains they have made into the corporate sector.

They offer excellent cash flow and even pay a decent dividend, but really we are here following signs of remission, and we do have that; with good growth seen across margins, earnings and profit with good forecasting backing growth through to 2018. We only have a small discount to target prices here with aggregate valuations coming in just 1% higher than current pricing but those targets have risen over 12% in the last 3 months alone. The six analysts covering SIQ are consensus positive on them with sentiment improving over the last few months as they continued to nurse prices higher.

Historically they show a trend of rare beauty, where after a constrained start in 2014 ranging between $1.60 and $1.20, the beginnings of 2015 saw them start their 600+% rally through to their mid-2016 peak of $7.70. From there they toppled over under the weight of an exhausted trend and consolidated down over 30% over three queasy months before beginning their rally to current levels.

Here we find them working on $7.00 resistance - which may yet see a few minor pullbacks with some weakness showing in the short-term. The medium and long-term picture is one of rude health however and is strong enough to view any weakness here as an opportunity and any bounce off $7.00 as worth following. Declining price does not always mean declining conditions and we believe that SIQ may yet make a longer-term recovery.


This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?