Eclipx share price plummeted 12% on Tuesday as nightmare week on the ASX continues

The Eclipx Group Ltd (ASX: ECX) share price crashed another 12% 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.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

More on Share Fallers

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A worried man holds his head and look at his computer.
Share Fallers

Why 29Metals, Brainchip, Platinum, and Premier Investments shares are falling today

These ASX shares are having a tough time on hump day.

Read more »

Man with his head in his head because of falling share price.
Share Fallers

Why 29Metals, Atlas Arteria, IDP Education, and Mineral Resources shares are falling

These ASX shares are having a tough time on Tuesday. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why ALS, EOS, NRW, and Patriot Battery Metals are dropping today

These ASX shares are starting the week in the red.

Read more »

A man looking at his laptop and thinking.
Technology Shares

Why are these ASX tech shares getting smashed today?

Owners of these two stocks are missing out today.

Read more »

a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.
Share Fallers

Why AGL, Brickworks, IGO, and New Hope shares are dropping today

These ASX shares are having a poor session. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Amcor, Arafura, Brainchip, and South32 shares are tumbling today

These ASX shares are having a tough time on hump day. But why?

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Aussie Broadband, Liontown, Metals Acquisition, and Seek shares are falling

These ASX shares are having a poor session. But why?

Read more »