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Results: Smartgroup share price on watch after weak earnings growth

The Smartgroup Corporation Ltd (ASX: SIQ) share price will be on watch this morning after reporting weaker earnings growth in its half-year result in an after-market release on Friday.

What did Smartgroup announce on Friday afternoon?

Smartgroup’s half-year earnings for the period ended 30 June 2019 (1H19) were headlined by revenue of $125.8 million, up 3% on the prior corresponding period (pcp).

The Aussie employee management services reported earnings before interest, tax, depreciation and amortisation (EBITDA) up 4% to $58.8 million which translated to net profit after tax and amortisation (NPATA) up 5% to $40.5 million.

Smartgroup’s adjusted NPAT also climbed 7% higher to $31.4 million during the half.

Smartgroup added 5,000 salary packaging customers throughout the half, while novated lease carpark customer numbers climbed 1,000 higher in 1H19.

Growth in the Aussie company’s Smartgroup’s novated leasing volumes should please shareholders, however, a 9% downturn in private new vehicle sales on pcp could be a sign of slowing growth.

Earnings quality for Smartgroup remained intact, with cashflow from operations (CFO) coming in at 103% of NPATA, up from 102% in 1H18.

In regards to the balance sheet, Smartgroup’s cash holdings fell by $11 million to $28.2 million as at period-end, while total assets also edged lower to $458.3 million.

Net debt ballooned during the half, albeit from a low base, more than doubling from $14.6 million in 1H18 to $32.5 million as at 30 June 2019.

Foolish takeaway

While the headline numbers increased across the board, the slow growth numbers are leaving a lot of work for SmartGroup to do in the second half to meet analyst estimates.

The Smartgroup share price is trading at $9.04 per share and boasts a market cap of $1.2 billion prior to the market open.

Analysts and investors do expect strong future growth from the Aussie leasing and employee management group, and I’m not sure the $53.7 million special dividend will be enough to appease shareholders in early trade.

The Smartgroup share price has struggled to climb higher so far this year, gaining just 2.15% since the start of January after a weaker-than-expected full-year result in February and significant insider selling in 2019.

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Motley Fool contributor Kenneth 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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