AUSTRALIA SGF AU Price (at 07:57, 27 Oct 2016 GMT) Outperform A$3.85 Valuation - PER A$ 3.92-4.18 12-month target A$ 4.37 12-month TSR % +18.1 Volatility Index Medium GICS sector Commercial & Professional Services Market cap A$m 972 30-day avg turnover A$m 0.6 Number shares on issue m 252.5 Investment fundamentals Year end 30 Jun 2016A 2017E 2018E 2019E Revenue m 210.0 274.0 292.4 309.1 EBIT m 78.3 96.5 106.2 118.3 Reported profit m 47.0 60.0 67.8 76.6 Adjusted profit m 54.2 66.6 72.9 81.7 Gross cashflow m 61.9 77.2 83.2 88.6 CFPS 24.7 30.3 32.6 34.7 CFPS growth % 25.8 22.7 7.6 6.6 PGCFPS x 15.6 12.7 11.8 11.1 PGCFPS rel x 1.33 1.27 1.30 1.35 EPS adj 21.6 26.1 28.6 32.0 EPS adj growth % 29.7 20.7 9.5 12.0 PER adj x 17.8 14.7 13.5 12.0 PER rel x 0.90 0.90 0.94 0.98 Total DPS 12.9 17.0 18.6 20.8 Total div yield % 3.3 4.4 4.8 5.4 Franking % 100 100 100 100 ROA % 18.9 17.5 17.8 19.0 ROE % 30.9 31.5 31.5 32.1 EV/EBITDA x 11.6 9.2 8.5 8.0 Net debt/equity % 32.3 40.0 27.3 16.5 P/BV x 4.8 4.4 4.0 3.7 SGF AU vs Small Ordinaries, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, October 2016 (all figures in AUD unless noted) 27 October 2016 Macquarie Securities (Australia) Limited 20-25% growth in FY17 Event AGM commentary that SGF is expecting 20-25% NPATA growth in FY17, implying $64.8m-67.5m in NPATA. This compared to our previous forecast at $71.3m and FactSet consensus at $71.3m. Impact Midpoint of $66.1m is an ~8% downgrade to FY17. There was no specific reason given for the guidance but there were a few issues mentioned in the AGM commentary. The Federal Election delayed some contract wins and their impact is only now being felt on the business. Finance margins on some products are being impacted by competitive behaviour and SGF is increasingly having to share residual profits with customers. Macquarie's own channel checks confirm that competition is increasing in the fleet space. Outlook still solid. We now expect EBITA to grow ~20% in FY17 driven by a full-year contribution from the nlc acquisition, the Fleet Hire acquisition in the UK and the recent NSW Government contract win where SG Fleet has won 95% of the vehicle fleet. SG Fleet now has 130,964 vehicles under management, up 45% on FY15 levels. This includes 21,516 vehicles from NSW State Fleet which started on 1 July 2016. This number excludes the recent UK acquisition Fleet Hire which manages ~6,500 vehicles. Balance sheet can fund further acquisitions. Net debt came in at $64.9m (Macquarie $65.9m) and is 0.7x EBITDA. SG Fleet stated it continues to actively pursue acquisitions. We expect net debt to EBITDA to remain steady in FY17 at 0.8x with operating cash flow offsetting the Fleet Hire acquisition cost. This should allow for further acquisitions. Earnings and target price revision FY17e eps down 6.6% to 26.1cps. FY18e eps down 6.5% to 28.6eps. Price target changed from $4.68 to $4.37. Price catalyst 12-month price target: A$4.37 based on a PER methodology. Catalyst: Results and contract wins. Action and recommendation Despite this announcement, we remain attracted to SG Fleet s capital light business model and multi-level growth strategy. Outperform. Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
SG Fleet (SGF:$3.85) 27-Oct-16 Interim results 2H15(a) 1H16(a) 2H16(a) 1H17(e) Profit & Loss 2016A 2017E 2018E 2019E Revenue 84.0 92.3 117.7 135.6 Revenue $m 210.0 274.0 292.4 309.1 EBITDA $m 33.6 37.7 51.3 54.3 EBITDA $m 89.0 112.3 121.5 130.3 Depreciation $m 3.8 3.8 3.9 5.3 Depreciation $m 7.7 10.7 10.2 6.9 Amortisation of goodwill $m 0.0 0.4 2.6 2.6 Amortisation of goodwill $m 3.0 5.1 5.1 5.1 EBIT $m 29.8 33.5 44.8 46.4 EBIT $m 78.3 96.5 106.2 118.3 Net Interest expense $m -0.3 1.2 3.2 3.3 Net interest expense $m 4.4 6.5 7.1 6.7 Pre-Tax Profit $m 30.2 32.3 41.6 43.1 Pre-Tax Profit $m 73.9 90.0 99.1 111.6 Tax Expense $m 9.4 9.5 13.2 14.2 Tax Expense $m 22.7 28.5 31.3 35.0 Net Profit $m 20.8 22.8 28.4 29.0 Net Profit $m 51.2 61.5 67.8 76.6 Outside equity interests $m 0.0 0.0 0.0 0.0 Outside equity interests $m 0.0 0.0 0.0 0.0 Net Abn/Extra $m 0.0-3.1-1.1-1.5 Net Abnormals/Extra. $m -4.2-1.5 0.0 0.0 Reported Earnings $m 20.8 19.7 27.3 27.5 Reported Earnings $m 47.0 60.0 67.8 76.6 Adjusted Earnings $m 20.8 23.2 31.0 31.5 Adjusted Earnings $m 54.2 66.6 72.9 81.7 Gross Cashflow $m 28.4 23.1 31.4 36.9 Gross Cashflow $m 54.6 83.1 85.9 92.4 EPS (Adj/dil) c 8.6 9.4 12.2 12.4 EPS (adj/diluted) c 21.7 26.1 28.6 32.0 EPS growth % 2.9 16.1 42.5 31.3 EPS growth % 29.9% 20.5% 9.5% 12.0% CFPS c 15.0 10.2 12.2 13.3 PE (adj) x 17.8 14.7 13.5 12.0 CFPS Growth % 136.5-2.0-18.4 31.0 CFPS c 22.4 29.1 32.7 34.8 EBITDA/Sales % 40.0 40.9 43.5 40.0 CFPS Growth % -11.6 29.9 12.3 6.5 EBIT/Sales % 35.5 36.3 38.1 34.2 PGCFPS x 17.2 13.2 11.8 11.1 Earnings Split % 51.3 42.8 57.2 47.4 DPS c 12.9 17.0 18.6 20.8 Revenue Growth % 3.6 8.1 40.1 46.9 Yield % 3.3 4.4 4.8 5.4 EBIT Growth % -3.5 9.8 50.1 43.0 Franking % 100.0 100.0 100.0 100.0 Profit and Loss ratios 2016A 2017E 2018E 2019E Cashflow Analysis 2016A 2017E 2018E 2019E Revenue Growth % 24.0 30.5 6.7 5.7 EBIT Growth % 29.7 23.3 10.1 11.4 Pre-tax Profit $m 73.9 90.0 99.1 111.6 EBITDA/Sales % 42.4 41.0 41.6 42.2 Depreciation & Amortisation $m 10.7 15.8 15.3 12.0 EBIT/Sales % 37.3 35.2 36.3 38.3 Tax Paid $m -30.0-22.7-28.5-31.3 Effective tax rate % 30.7 31.7 31.5 31.4 Gross cashflow $m 54.6 83.1 85.9 92.4 Payout ratio % 59.3 65.3 65.0 65.0 Changes in working capital $m 7.5-1.2 0.6 0.5 EV/EBITA x 12.5 10.4 9.3 8.2 Other $m -5.7-7.3-2.7-3.8 EV/EBITDA x 11.5 9.4 8.5 7.8 Operating Cashflow $m 56.4 74.5 83.7 89.1 EV/Sales x 4.9 3.9 3.6 3.3 Acquisitions $m -151.5-54.2-10.0-10.0 Capex - Plant & Equip. $m -4.9-4.0-4.3-4.5 Balance sheet ratios Asset Sales $m 0.1 0.0 0.0 0.0 ROE % 30.9 31.5 31.5 32.1 Other $m 19.2 0.0 0.0 0.0 ROA % 18.9 17.5 17.8 19.0 Investing cashflow $m -137.2-58.2-14.3-14.5 ROFE % 42.3 33.5 34.4 38.3 Dividend (ordinary) $m -28.0-43.0-46.9-52.6 Net Debt $m 64.9 88.5 66.0 44.0 Equity raised $m 0.0 3.1 0.0 0.0 Net Debt/Equity % 32.3 40.0 27.3 16.5 Other $m 0.0 0.0 0.0 0.0 Interest Cover x 17.9 14.8 14.9 17.7 Financing cashflow $m -28.0-39.9-46.9-52.6 Price/NTA x -6.3-7.5-9.3-12.9 NTA per share $ -0.61-0.51-0.41-0.30 Net Change in cash/debt $m -108.8-23.6 22.5 22.1 EFPOWA m 251.4 255.9 255.9 255.9 Historical performance 2013A 2014A 2015A 2016A Balance Sheet 2016A 2017E 2018E 2019E Cash $m 81.7 99.2 121.7 143.7 Revenue $m 157.0 156.5 169.4 210.0 Receivables $m 48.8 52.7 56.2 59.4 EBITDA $m 66.2 61.8 67.5 89.0 Inventories $m 5.2 5.4 5.8 6.1 Depreciation/Amortisation $m 7.8 6.8 7.2 10.7 Investments $m 0.0 54.2 64.2 74.2 EBIT $m 58.4 55.0 60.3 78.3 Property, plant & equipment $m 19.0 12.3 6.3 3.9 Net interest expense $m 4.5 4.2 1.6 4.4 Intangibles $m 364.2 359.1 354.0 348.9 Pre-Tax Profit $m 53.9 50.8 58.8 73.9 Other Assets $m 0.2 0.2 0.2 0.2 Tax Expense $m 16.3 15.4 18.3 22.7 Total Assets $m 519.0 583.0 608.3 636.4 Net Profit $m 37.6 35.4 40.5 51.2 Payables $m 63.5 66.4 70.8 74.9 Net Abn/Extra $m 0.0 0.0 0.0-4.2 Short Term Debt $m 19.6 19.6 19.6 19.6 Long Term Debt $m 127.0 168.1 168.1 168.1 EPS (adj/dil) c 15.5 14.6 16.7 21.7 Other Liabilities $m 107.7 107.7 107.7 107.7 EPS growth % 0.6-0.1 0.1 0.3 Total Liabilities $m 317.7 361.7 366.2 370.2 Ordinary DPS c 0.0 4.0 10.8 12.9 Shareholders Funds $m 201.2 221.2 242.1 266.2 EBITDA/Sales % 42.2 39.5 39.8 42.4 Minority Interests $m 0.0 0.0 0.0 0.0 EBIT/Sales % 37.2 35.1 35.6 37.3 Total Shareholders Equity $m 201.2 221.2 242.1 266.2 ROE % 68.7 29.7 29.1 30.9 ROFE % 101.9 48.0 55.2 42.3 Total Funds employed $m 519.0 583.0 608.3 636.4 EFPOWA m 242.7 242.7 242.7 251.4 2016A 2017E 2018E 2019E 2016A 2017E 2018E 2019E SGF Sales 210.0 245.1 260.8 275.9 Growth 24.0% 16.7% 6.4% 5.8% ND/EBITDA x 0.7 0.8 0.5 0.3 nlc sales 0.0 0.0 0.0 0.0 EBITDA/Net Interest x Fleet Hire sales 0.0 29.0 31.6 33.2 ND/Tangible assets % 42% 40% 26% 15% Total 210.0 274.0 292.4 309.1 SGF EBITDA 89.0 105.0 112.5 119.0 nlc EBITDA 0.0 0.0 0.0 0.0 Fleet Hire EBITDA 0.0 7.2 9.1 11.3 Total 89.0 112.3 121.5 130.3 Margin 42.4% 41.0% 41.6% 42.2% Source: Company data, Macquarie Research, October 2016 27 October 2016 2
Macquarie Quant View The quant model currently holds a marginally positive view on SG Fleet Group. The strongest style exposure is Profitability, indicating this stock is efficiently converting investments to earnings; proxied by ratios like ROE or ROA. The weakest style exposure is Quality, indicating this stock is likely to have a weaker and less stable underlying earnings stream. 142/348 Global rank in Comm. & Prof. Services % of BUY recommendations 80% (4/5) Number of Price Target downgrades 0 Number of Price Target upgrades 0 Fundamentals Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Comm. & Prof. Services) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. 1.6 1.5 1.0 0.5-1.3-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -80% -60% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. 0.9 0.4-0.1 1.0-0.3-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -50% 0% 50% 100% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Dividend Yield LTM Price to Cash FY0 Price to Earnings LTM Sales to EV NTM Momentum 3 Month Turnover (USD) 20 Day EBITDA Revisions 3 Month 3M Price Target Revisions Negatives Positives -38% 32% 31% 31% 38% -60% -20% 0% 20% 40% 60% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score 0.50-0.07 0.06 0.90 0.70 0.25-0.53-0.31-1.57 0.06 0.57 Percentile relative to sector(/348) Percentile relative to market(/423) 0 50 100 0 50 100 0 0 1 1 Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 27 October 2016 3
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 60 100% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 30 September 2016 AU/NZ Asia RSA USA CA EUR Outperform 47.26% 55.50% 38.46% 45.47% 59.09% 48.21% (for US coverage by MCUSA, 8.20% of stocks followed are investment banking clients) Neutral 38.01% 29.31% 42.86% 48.77% 37.88% 36.79% (for US coverage by MCUSA, 8.25% of stocks followed are investment banking clients) Underperform 14.73% 15.19% 18.68% 5.76% 3.03% 15.00% (for US coverage by MCUSA, 8.00% of stocks followed are investment banking clients) SGF AU vs Small Ordinaries, & rec history (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, October 2016 12-month target price methodology SGF AU: A$4.37 based on a PER methodology Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Date Stock Code (BBG code) Recommendation Target Price 16-Aug-2016 SGF AU Outperform A$4.68 05-Aug-2016 SGF AU Outperform A$4.58 16-Feb-2016 SGF AU Outperform A$3.90 18-Nov-2015 SGF AU Outperform A$3.87 11-Sep-2015 SGF AU Outperform A$2.92 Target price risk disclosures: SGF AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business 27 October 2016 4
This publication was disseminated on 27 October 2016 at 10:02 UTC. Macquarie Wealth Management in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research,, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures Macquarie Group 27 October 2016 5