Wilson Asset Management

We are currently following vehicle fleet leasing, fleet management and diversified financial services company Eclipx Group Limited (ASX:ECX), which listed in April. The company’s management team is highly respected and, given its track record at Flexigroup, should perform well in their new roles. Eclipx has three divisions; Australian Commercial; Australian Consumer; and New Zealand Commercial. Their primary revenue model is to fund, lease and manage motor vehicles on behalf of a diversified customer base.

Driven by its superior technology, IT platform and new product innovation, over the coming years Eclipse should continue to win market share, lower the cost-to-income ratio and increase margins. The regulatory risk, which adversely affected McMillan Shakespeare when the Rudd government introduced changes to fringe benefits tax (FBT) on cars (since reversed), has subsided. In particular, the recent Federal budget made no material negative changes to FBT on cars and instead offered the immediate deduction for small business expenses of up to $20,000.

Driven by strong growth in revenue and a reduction in costs, Eclipx recently delivered an interim net profit after tax (NPAT) of $23.8m. The company remains on target to exceed its prospectus forecast of $47.0m in financial year 2015. Next year, we expect further organic revenue growth, growth in receivables, slightly lower cost of funds and an improved cost-to-income ratio. We also expect to see further synergies from acquired businesses and growth in the commercial equipment financing start-up business.

Key risks include used car deterioration, financing and regulatory risk. For example, over a third of earnings before interest, tax and amortisation are derived from end of lease income after impairments. Any deterioration in residual car prices will be detrimental to Eclipx’s profits.

We participated in April’s IPO and have acquired more shares since, confident that the company will continue to perform in coming years. We expect the company will grow its net profit by 37% this year, which puts it on a price to earnings ratio of 14. Eclipx’s forecast dividend yield for the 2015 financial year is 2.4%.



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