The CML Group Ltd (ASX: CGR) share price has raced 16% higher today after releasing a positive business update to the market this morning.
The company provides cashflow solutions for businesses, including a range of equipment financing, invoice factoring, and trade finance for purchasing stock in advance.
What lifted the CML Group share price?
In today’s update, CML Group reported strong monthly growth in volumes as business restrictions eased. In addition, it confirmed there have been no material defaults or losses, despite the circumstances of the coronavirus lockdown.
CML Group reported that June saw its core invoice finance business post its biggest monthly increase in the past 12 months, as a result of net growth in client numbers. Moreover, existing client volumes began to lift from reduced activity in April and May as a result of COVID-19.
June 2020 saw 14% growth in invoicing on May 2020, as well as a 10% increase on June 2019. In 2020, even with the impact of the COVID-19 crisis, the company financed over $1.7 billion in invoices compared with $1.6 billion for FY19.
The company expects to post FY20 earnings before interest, taxes, depreciation, and amortisation of $19.5 million–$20.5 million, and a net profit after tax and before amortisation of $7.5 million–$8 million.
It also expects to pay a dividend in the range of 1.75 cents to 2 cents per share, fully franked.
Outlook for CML Group
Management expects to see demand for invoice financing continue to increase in FY21. This demand is driven by businesses considering the working capital needed to manage the costs of business disruption.
CML reduced its invoice finance cost base by $2.5 million on an annualised basis during the COVID-19 period by permanently removing management layers from the organisational structure and addressing over-capacity of staffing in other areas of its business.
In the company’s H1 FY20 report, it announced a strategy to move up the credit curve to target larger clients, which will increase the average facility size and earnings per client, and extend average client tenure.
The CML Group share price jumped as high as 18% in early trading and is up by 16.67% at the time of writing. This values the company at $68.54 million, with a trailing 12 month dividend yield of 7.62%.
Motley Fool contributor Daryl Mather 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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