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Strong earnings and dividend increase could see Smartgroup share price soar

ASX growth shares 2019

The Smartgroup Corporation Ltd (ASX: SIQ) share price could rise today after it reported strong full-year earnings and announced a dividend increase of 19% from FY17 on the back of strong client growth and improved operational metrics.

The company announced an 18% increase in revenue to $241.8 million, whilst earnings before interest, tax, depreciation and amortisation (EBITDA) increased 19% on prior corresponding period to $111.8 million. This strong earnings result translated to an adjusted net profit after tax of $78.0 million, up 22% on FY17 numbers as fleet management, salary packaging and novated leases all grew strongly.

The employee management services provider has continued to diversify its client base since December 2015, with 40% of its 343,000 packages now comprising PBI non-hospitals. Other major sectors for the group include PBI Hospitals (32%), Government (13%) and Education (11%) which has proved to be a successful strategy in 2018.

Despite a downturn in private new vehicle sales, the company managed to increase its novated leasing volumes and management indicated the SIQ novated lease settlement volumes to new private car sales has been maintained in 2019.

Smartgroup continues to focus on customer service and the automation of its core systems, which should serve to boost future profitability once the total capex spend has been completed. The company now has 695 full-time equivalent employees, nearly double that from November 2015 in a sign of its sustained growth in operations.

The good news for income investors is that the company’s dividend per share (DPS) continues to grow strongly year-on-year. From just 6.2 cents per share (cps) in 2014, the company steadily increased this including the 19% increase to 54.4 cps total dividend payout in 2018. This is a big bonus for investors, particularly given its also franked to 100% by the company.

Is the Smartgroup share price a Buy?

All in all, today’s full-year result looks to be very solid from Smartgroup’s perspective. While the company may face some challenges should the economy take a turn and employment starts to rise, the fundamentals remain solid for the group.

Friday’s closing price of $9.80 per share is up over 10% since the start of the year as the company has been carried higher by the S&P/ASX200 Index (ASX: XJO). The company has grown more than 30% over the last year or so, but I think for those investors looking for a diversification option in their portfolios, Smartgroup could absolutely fit the bill.

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Motley Fool contributor Lachlan Hall has no position in any of the 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 Scott Phillips.

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