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Eclipx Group Ltd’s profit soars before McMillan Shakespeare Limited merger deal

This morning the Eclipx Group Ltd (ASX: ECX) share price dropped 1.5% to $2.60 after the vehicle leasing group handed in what is likely to be its last profit report ahead of a proposed merger with McMillan Shakespeare Limited (ASX: MMS). Below is a summary of Eclipx Group Ltd’s results for the year to September 30, 2018.

  • Net operating income up 27% to $325.3m
  • Net profit after tax and amortisation up 14% to $78.1m
  • Total assets under management or finance up 9% to $2.43b
  • New business writings up 11% to $1.1b
  • Cash earnings per share down 2% to 24.7 cents
  • Final dividend per share of 8 cents
  • Total annual dividends per share up 5% to 16 cents

Eclipx is probably better known to Australians under one of the multiple brands it operates such as ‘GraysOnline’, ‘Right2Drive’, “FleetPartners’ or ‘carloans.com.au’.

As with its proposed merger partner McMillan Shakespeare its core business is vehicle leasing commonly under a ‘salary packaging’ arrangement between an employer and employee.

For example an employee can give up future salary benefits in return for the employer agreeing to provide benefits of a similar value such as a novated lease to acquire a car. This is also more tax effective as it can help an employer and employee potentially save on costs like income tax or GST.

Looking ahead the merger with McMillan Shakespeare is set for approval in the first quarter of calendar year 2019 in a deal that will create Australia’s dominant salary packaging and vehicle leasing business ahead of principal rival Smart Group.

It’s expected to be earnings per share accretive for investors even before the combined management teams attempt to pull out $50 million of costs from the new group over its first three years operating as a merged entity.

On a pro forma basis in FY 2019 the combined group is forecasting a net profit of $171 million, with a market cap around $2.1 billion.

The salary packaging space has been subject to regulatory change in the recent past and investors might want to let the dust settle on the merger before considering buying the new business.

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