The Smartgroup Corporation Ltd (ASX: SIQ) share price is surging to a four-month high today. This comes after the company posted an increase in full-year profit despite the COVID-19 headwinds.
The salary packaging company's shares are currently up 8.81% to $8.03 apiece after management gave investors a few reasons to cheer.
Smartgroup share price climbs as profit rises
Highlights of Smartgroup's full-year CY 2021 results include:
- Revenue of $221.8m, up 3% on CY 2020
- Operating earnings before interest, tax, depreciation, and amortisation (EBITDA) of $103.0m, up 8% on CY 2020
- Net profit after tax adjusted for amortisation (NPATA) up 7% to $69.5 million
- Net operating cash flow of $78.3 million, representing 113% of NPATA
- Net cash of $3.6m at year-end
- Fully franked final ordinary dividend of 19 cents per share (cps)
- Fully franked special dividend of 30 cps
Bigger margins despite cost pressures
It is not an easy task to expand profit margins in this climate. But supply chain disruptions from the pandemic and inflationary pressures failed to offset the cost savings from the company's efficiency drive.
What is helping Smartgroup deliver good results is also the extra circa 17,000 salary packaging customers it secured during the year. Around half of them were introduced from a new healthcare sector client.
The company also boasted it had a 100% success rate in renewing or extending its top 20 contracts. This includes its biggest client, the Department of Defence.
Nearly all of Smartgroup's clients are from stable and defensive sectors such as health, education, not-for-profit, and government.
Smartgroup also highlighted its strong net operating cash flow of $78.3 million which is even bigger than its NPATA figure.
It's reassuring to have a strong balance sheet during these volatile times. The group has no net corporate debt, and its business model doesn't need much capital to run.
What else?
The company isn't totally immune from the impact of COVID. Delays in getting new vehicles continued to push out settlement timeframes for novated leasing vehicles. The number of open vehicle leases at 31 December 2021 is up 152% to the same time last year.
It's a case of supply not keeping up with strong demand. Smartgroup noted that its novated leasing leads are up 8% in the first few weeks of 2022 versus the previous corresponding period.
But in the grand scheme of things, that's not a bad problem to have.
Dividend delight for shareholders
The company is paying a juicy special dividend that's on top of its bigger final dividend.
Management declared a final dividend of 19 cps, which is 8.6% ahead of last year, and a 30 cps special payout. This brings total dividends for the year to 72 cps. Both distributions are fully franked.
The dividends are payable on 23 March 2022, with a record date of 9 March 2022.
Commentary from management
Speaking on the results driving the Smartgroup share price, chairman Michael Carapiet said:
Smartgroup has continued to prove its resilience, withstanding the ongoing impacts of COVID-19 and delivering strong operational results.
The company generates high-quality earnings from a diversified customer base operating in growing sectors and with relationships based on long-term contractual arrangements.
Smartgroup CEO Tim Looi added:
I am not only pleased with our strong financial results this year but am also positive about the foundations our Smart Future program has built for future EBITDA and business growth.
In the first few weeks of trading in 2022, our novated leasing leads are up by 8% compared to the same period in 2021. Our key digital deliverables from Smart Future are on track and our investments in people, processes, and technology are delivering results that will continue through CY 2022.
Smartgroup share price snapshot
The Smartgroup share price has risen almost 9% over the past 12 months. It is also up 3% since the start of the year.
For comparison, the All Ordinaries Index (ASX: XAO) is up around 5% in the past year and is down almost 4% this year to date.
