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Smartgroup shares rise despite feeling coronavirus effects

Smartgroup Corporation Ltd (ASX: SIQ) has advised it is seeing reduced business activity as a result of the coronavirus outbreak.

In an announcement released this morning, Smartgroup said it was planning for reduced trading conditions to persist for some time. Nonetheless, Smartgroup shares are up over 6% at the time of writing, well ahead of the S&P/ASX 200 Index (ASX: XJO) which is up 1.30%. 

Share price performance 

Smartgroup provides salary packaging, novated leasing, and fleet management services to a raft of employers across Australia. The Smartgroup share price fell 43% from its February peak of $7.36 to a low of $4.17 on Monday, but has bounced back to $5.12 as the market recovered somewhat.  

Directors in Smartgroup have taken advantage of the dip in the share price with four directors acquiring more than 135,000 shares in the company during March. 

Business performance 

Today, Smartgroup advised that its performance for the two months to 29 February 2020 was in line with performance for the corresponding period in 2019. Following the implementation of recent public health measures, however, and the corresponding impact on economic activity, the company is beginning to feel the economic impacts of coronavirus. The business is now seeing signs of reduced business activity, particularly across sales leads for new novated leases. 

Smartgroup says it is too early to assess and quantify the impact of the current environment on its business. Nonetheless, the company is planning and repositioning itself for reduced trading conditions to persist for some time. 

No earnings guidance 

Smartgroup does not provide earnings guidance but notes that, given the current uncertainty, it does not consider any earnings forecasts in analyst reports to be reliable in the present circumstances. 

Smartgroup emphasised that it has a diversified client base with around 96% of employee customers working in federal and state government departments, healthcare, education, or not for profit segments. 

Full-year results 

In Smartgroup’s full-year results released in February, the company reported a 3% increase in revenue which grew to $249.8 million and a 4% increase in profit which grew to $81 million. A fully franked dividend of 21.5 cents per share was declared, and was paid on 16 March. 

The company says it operates an asset-light business model and is well-capitalised. It says it has adequate cash to support its business operations. Smartgroup currently has available cash balances in excess of $60 million and net debt of $36 million. 

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Motley Fool contributor Kate O'Brien 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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Kate O'Brien