In the last three months the share price of salary packaging and fleet management company Smartgroup Corporation Ltd (ASX: SIQ) has rocketed by 60%. This huge gain was down to a combination of Leader of the Opposition Bill Shorten revealing he had no plans to make any changes to the Fringe Benefits Tax and a series of earnings accretive acquisitions.
According to reports in the Australian Financial Review fund managers are tipping industry rival Eclipx Group Ltd (ASX: ECX) to be next to follow on. The catalyst for this is the belief that Eclipx is currently busy preparing for a potential acquisition of UDC Finance.
UDC Finance is the up for auction New Zealand plant and equipment finance business owned by banking heavyweight Australia and New Zealand Banking Group (ASX: ANZ).
Considering the cross-overs that the businesses have I would expect there to be synergies that management would be able to unlock in the event of an acquisition. Much like Smartgroup's acquisitions, I feel this would be likely to prove accretive to earnings as well.
I believe this bodes well for Eclipx shareholders moving forward and makes the company an interesting investment option today in my opinion. At 24x trailing earnings Eclipx is trading at a discount to Smartgroup, which may be starting to look a touch expensive at 33x trailing earnings.
In its half year results the company posted net profit after tax and amortisation of $26 million, which was a solid 9% increase year on year. Although it isn't growing profits at as quick a rate as Smartgroup, I believe this potential acquisition could help accelerate the company's earnings growth.
Personally I think Eclipx is a very strong company which could make a good long-term investment already. I have no doubt this potential acquisition would make it an even better one, but as it is anything but a foregone conclusion I wouldn't suggest investing in the company solely on the back of this news.
