What is your professional pick?
SG Fleet (SGF). SGF is a leading diversified fleet manager across both corporate and salary packaging sectors. It has a presence in Australia, New Zealand and the UK. The corporate sectors constitute 70% of fleet size, with the remainder salary packaging. SGF provides comprehensive asset management services to customers, including among others insurance, maintenance services, additional products e.g. tools-of-trade applications and disposal of vehicles. SGF recently announced the purchase of nlc for $200m, a specialist manager and provider of consumer finance and novated leases.
How long have you held the stock?
We initiated our position in March 2014. The stock traded at around 10% after tax yield at that stage which represented compelling value in our view.
What do you like about it?
SGF has a well-diversified business model across industries, its client base, product mix as well as fleet composition. Income streams are relatively predictable and the business is highly cash generative. It has established long-term relationships with the majority of its client base (average 8 years) and offers not only essential but value added fleet management services to its client base. These create very high barriers to entry to new entrants.
Where do you see the value?
We like SGF for the following reasons
- Resilient business model with diversified cash flow certainty;
- High industry barriers to entry and innovative product offering;
- Well-developed risk management systems spanning client and product exposure;
- Experienced management team with deep knowledge of the industry;
- High cash flow conversion through business cycles
How is it better than its competitors?
The business is well-diversified and does not have an over-reliance on any one sector, unlike many of its peers. It also provides a range of services that “lock-in” its clients and adds substantially to its clients’ asset utilisation and efficiency. SGF is also a market leader in developing innovative products.
What do you like about its management?
Management has deep industry knowledge. Management has demonstrated to have a healthy common sense approach and to date has executed very well on strategy. They are on the forefront of developments in the industry, both technical and political. They also have substantial personal investments in the company, which align them with shareholders.
What is your target price on the stock?
We have a price target of $3.95 based on a sum-of-the-parts basis which represents a 15% upside from the current market price. However, this is based on conservative estimates for the newly acquired nlc.
At what point would you sell it?
We would sell the stock when it breaches our valuation metrics. Having said that, SGF has a very attractive growth profile and is well placed to participate in industry consolidation.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
Since initiation, the stock has added 1.4% to our portfolio.
Is it a liquid stock?
SGF has a market capitalization of circa $800 million. Average weekly trade is 1.1 million shares or 0.5% of the market cap. It is therefore relatively illiquid, taking into account the free float of 46%.
SG Fleet (SGF)
[1]Source: Yahoo!7 Finance
Anton du Preez is a fund manager with Pengana Capital
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