The Eclipx Group Ltd (ASX: ECX) share price crashed another 12.31% lower yesterday as the group struggles to stop the selling after it scrapped of a planned merger with McMillan Shakespeare Ltd (ASX: MMS) last week.
What did Eclipx announce that was so bad?
The vehicle fleet leasing company reported net profit after tax and amortisation (NPATA) had fallen 42.4% compared to the first 5 months of FY18 and that it could not provide full-year guidance for FY19 at the moment. The company’s dividend is also in danger with management yet to decide on the best course of action.
The company also announced that its financial performance had “softened” since its 29 January 2019 update as Grays Industrial and Insolvency segments continue to underperform, and it’s looking at divesting non-core assets.
What happened to the planned merger?
Both Eclipx management and McMillan Shakespeare announced that the merger was “unlikely” as McMillan pointed to several key issues in Eclipx’s trading update including the NPATA decline and ongoing underperformance.
While Eclipx had requested an extension to the existing scheme terms, McMillan’s rejection of this ultimately sent the share price tumbling with the current $0.57 share price down 70% on the pre-update $1.89 per share valuation.
Could the Eclipx share price be cheap enough to buy?
Anytime a company’s share price declines by 70% in a week there’s a case that it could be undervalued.
While Eclipx’s update did identify a myriad of issues facing the leasing and fleet management company, the potential divestments and expansion of a cost-cutting programme could make the case that now is the time to buy Eclipx.
Personally, I’m not looking to add that sort of risk to my portfolio, but I think the current 3x P/E multiple and the fact it’s trading at an all-time low would indicate that value is there for those who are a little more risk-seeking and interested in effectively distressed equity investments.
Provided Eclipx can turn around the ship, we might just look back at $0.57 per share and see it as the one that got away.
While big question marks remain regarding the Eclipx share price and the company’s long-term future, this buy-rated stock could be set to take a new-age $22 billion by storm in 2019.
This Tiny ASX Stock Could Be the Next Afterpay
One little-known Australian IPO has doubled in value since January, and renowned Australian Moonshot stock picker Anirban Mahanti sees a potential millionaire-maker in waiting...
Because 'Doc' Mahanti believes this fast-growing company has all the hallmarks of genuine Moonshot potential, forget 'buy now pay later', this stock could be the next hot stock on the ASX.
Doc and his team have published a detailed report on this tiny ASX stock. Find out how you can access what could be the NEXT Afterpay today!
Returns as of 6th October 2020
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.
- Westpac (ASX:WBC) share price climbs higher as investors eye dividends – January 15, 2021 11:35am
- Fortescue (ASX:FMG) share price climbing despite cost blowout rumours – January 15, 2021 10:30am
- Why the Michael Hill (ASX:MHJ) share price is on watch today – January 15, 2021 9:59am