Date of Data Capture: 19/5/2017
Name: SMARTGROUP CORP LTD (SIQ)
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
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.