It certainly has been a great three months to be a shareholder of Smartgroup Corporation Ltd (ASX: SIQ). During this time its share price has rocketed higher by an astonishing 60% versus the solid 5.5% increase in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Today's 13% rise has of course been a big contributor to these gains. This was the result of an announcement this morning advising the market that it has successfully completed its $54 million institutional placement to partly fund the acquisition of Selectus Pty Ltd.
The placement priced at $7.00 per new share, which represented a 6.9% premium to the last close price before the trading halt of $6.55. Rather positively the salary packaging specialist advised that the offer was substantially oversubscribed at the offer price.
This is the second acquisition this month following the announcement on July 4 of its plans to acquire novated leasing company Autopia for $36 million. Management expects both acquisitions to be accretive to earnings.
As well as announcing its acquisition plans yesterday, Smartgroup also released a trading update for the half year. It expects to post revenue of $60.5 million and net profit after tax and amortisation of $18 million. This will be an increase of 35% and 44%, respectively, over the prior corresponding period.
The fact that net profit is growing at a quicker rate to revenue is something that caught my eye. I believe this demonstrates that management is operating the company in an incredibly efficient manner.
But at the current share price its shares certainly cannot be considered cheap when judged against its peers McMillan Shakespeare Limited (ASX: MMS) and SG Fleet Group Ltd (ASX: SGF). It may well be the better business, but at 33x trailing earnings I would personally hold off investing until there's a pull back in its share price.
