Earlier today, fleet management and salary packaging company SG Fleet Group Ltd (ASX: SGF) released a strong set of results for 2016. Revenue increased 23.7% to $212 million and net profit after tax (NPAT) rose 16.1% to $47 million.
The company declared a final dividend of 7.6 cents per share, bringing the total for the year to 12.9 cents, an increase of 18.5% on last year. This equates to a dividend yield of 2.8% at current prices.
Excluding acquisition costs, underlying net profit before tax (NPBT) grew by a healthy 25.7% to $73.9 million and NPBT margins expanded slightly from 34.3% to 34.9%. Underlying cash earnings-per-share (EPS) increased 29.2% to 21.8 cents.
Revenue growth occurred across all business lines as a result of further customer wins, selling more services to existing customers and the impact of acquisitions. SG Fleet purchased leading novated lease provider nlc for $211.4 million in November 2015 and it contributed NPBT of $10.4 million before acquisition costs during the year.
A full year contribution from nlc will improve group profits in 2017 as will the ramp up of a major contract that SG Fleet won in March 2016. The contract will see SG Fleet managing 21,500 vehicles on behalf of the NSW government, representing 95% of its total fleet.
SG Fleet has two small operations in New Zealand and the UK that contribute around 5% of group revenue between them. The New Zealand business won a coveted contract with KiwiRail during the year and delivered a maiden profit. Meanwhile, the UK business was boosted by the purchase of short-term rental and fleet management provider Fleet Hire which should establish a platform for growth in this attractive market.
2016 was a strong year for SG Fleet despite a patchy business environment that was affected by uncertainty surrounding the federal election. Organisations continue to look to outsource fleet management because it is a time consuming, non-core activity and this will drive industry demand over the coming years. Furthermore, regulatory risks seem to have died down after leading decision makers recently committed to retaining current salary packaging arrangements for the foreseeable future.
SG Fleet has $64.9 million of net debt compared to $45.3 million net cash in 2015. It also has a $58.7 million vehicle maintenance funds liability that represents money received from clients for maintenance purposes that must be returned if it is not used.
Based on underlying cash EPS, SG Fleet is trading on a price-to-earnings ratio (PER) of 21 and so the stock looks fully priced despite continuing strong performance.
