The Eclipx Group Limited (ASX: ECX) share price is lower again this morning, down 2.41% to 81 cents in early trade after it yesterday saw more than half of its value wiped in just one day. The Eclipx share price collapsed by 56% on Wednesday following a trading update and the abandonment of a merger with McMillan Shakespeare Limited (ASX: MMS).
What was in the Eclipx trading update?
Eclipx announced that its financial performance has "softened" since its 29 January 2019 update as Grays Industrial and Insolvency segments continue to underperform. The group is looking at divesting its non-core assets, including its Grays and Right2Drive segments, to combat declining profitability and focus on its core Fleet & Commercial equipment business, as well as novated leasing.
The vehicle fleet leasing company reported net profit after tax and amortisation (NPATA) had fallen 42.4% compared to the first 5 months of FY18 and that it could not provide full-year guidance for FY19 at the moment. The company's dividend is also in danger with management yet to decide on the best course of action.
Despite noting some "positives" from the result, such as higher total group Assets Under Management or Financed (AUMOF) of $2.46 billion, the update saw Eclipx's market cap fall to $265 million as its dividend yield surged from 6.7% to 20% and its P/E multiple plummet to just 4.3x earnings.
What caused merger talks to breakdown?
McMillan Shakespeare put out a response soon after Eclipx's announcement in which it said that it does not see key issues being resolved through a requested extension of the End Date in the existing Scheme documents.
Eclipx had requested that McMillan Shakespeare extend the End Date by 2 weeks to 14 May 2019, but McMillan doesn't see an extension remedying the major issues identified including the NPATA decline, business-unit issues, impact of process errors which Eclipx has identified in past financial years and the lack of revised earnings guidance.
Where to now for Eclipx?
With both parties seemingly resigned to the fact that a merger won't be proceeding, and the Eclipx share price tanking, it's hard to see the silver lining for the fleet leasing group.
While the company has announced an expansion of its cost reduction programme, declining profitability and the potential sale of major group assets will change the earnings and operating profile of the group going forward and leaves little room for value-add at the moment.
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