Why the Smartgroup Corporation Ltd share price went nuts today

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.

Smartgroup might be a touch expensive right now. However, these three new breed blue chip shares could be priced for share price gains in the next few months. They also pay a solid growing fully franked dividend too.

Why These 3 Blue Chip Shares Are Set to Soar in 2016

Discover The Motley Fool's Top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.