The Smartgroup Corporation Ltd (ASX: SIQ) share price is up 8% after giving a promising update.
Smartgroup is one of Australia’s largest salary packaging businesses.
Contract win
Smartgroup said after a competitive process, the South Australian government has appointed one of the ASX share’s businesses as its exclusive administrator of salary packaging services and novated leasing services under an initial 5-year agreement and up to 10 years including extensions.
This new contract starts on 1 July 2024 and services will be made available to approximately 110,000 South Australian government employees. Smartgroup will also exclusively manage a panel of third-party novated leasing providers or financiers.
The ASX share will further invest in sales, customer education and customer service roles, including in Adelaide. Earnings aren’t expected to meaningfully rise in 2024 from this contract.
Trading update
Smartgroup said it expects its 2023 underlying net profit (NPATA) is approximately $63 million. Its current revenue expectation for 2023 is approximately $249 million, largely driven by bigger novated leasing volumes. This is helping Smartgroup shares.
Product, staff, technology and other costs are “up” in the second half of 2023, amid for investing for future growth and some wage increases and general inflation. As volumes grow, the company is expecting that there will be a “further need to add front line and operations resources.”
The company said electric vehicle demand “increased significantly from late 2022, and electric vehicles now make up over 40% of total Smartgroup new car lease orders.” In the second half of 2023, new EV car orders have increased over 60% from the first half of 2023. The 2023 second half new combustion engine car orders are expected to be broadly in line with the first half of 2023.
Final thoughts on Smartgroup shares
I’m no expert on the company, but winning new contracts is certainly a positive for the ASX share, I can see why it’s up.
How much further can it rise? I’m not sure, there are only so many contracts to be won. It has done well over the past decade.
