The Eclipx Group Ltd (ASX: ECX) share price has plummeted 55% lower after returning from a trading halt. This comes after the company provided a market update citing weak trading conditions and that its planned McMillan Shakespeare merger now looks unlikely.
What was the trading update?
Eclipx announced that its financial performance has "softened" since its 29 January 2019 update as its Grays Industrial and Insolvency segment continues to underperform which has outweighed continued growth in motor vehicle auctions.
Its Right2Drive segment has been impacted by weaker-than-anticipated trading conditions and a reassessment of recovery rates from some debtor groups which has resulted in higher provisioning, while the group's Consumer and Fleet segments have also experienced weaker trade.
Eclipx announced that adjusted NPAT (NPATA) is down 42.4% compared to the first 5 months of FY18 and the group does not expect reported NPATA to be consistent with FY18 (as advised on 29 January 2019) and could not provide full-year guidance at this time.
Despite noting some "positives" from the result, such as higher total group Assets Under Management or Financed (AUMOF) of $2.46 billion, this latest update has seen the Eclipx share price plummet after recommencing trading today.
The group intends to simplify its core business and focus on Fleet & Commercial equipment, novated leasing in addition to new car buying and trade-in services while reviewing its Grays and Right2Drive segments.
What's happening with the merger?
Eclipx announced that it has been unable to reach an agreement with McMillan Shakespeare Limited (ASX: MMS) on the terms of the Scheme Booklet.
The group requested that McMillan Shakespeare agrees to an extension of the End Date within the scheme by 2 weeks to 14 May 2019, but McMillan has indicated that it believes it is now impossible to complete the remaining steps necessary for the Scheme to become effective by 30 April 2019.
As a result, Eclipx management has advised that the merger is unlikely to proceed.
So how bad is the damage for Eclipx?
Despite management's assertions, today's trading update is mostly bad news for the group.
The company announced it will be expanding its cost reduction programme which is expected to result in an annualised cost reduction of ~$20 million (10%) over the next 18 months as it restructures central support, simplifies Head Office and shared services and continues to explore productivity initiatives across the group.
I think the stock is going to continue to be hammered and I'd be turning to these top growth shares to boost returns in my portfolio instead of Eclipx.
