Growing SG Fleet pays good dividends
Key statistics: ASX:SGF
2.2.16 closing share price: $3.400
52 week high: $3.960
Most recent dividend: 6.117c
Annual dividend yield: 2.85%
SG Fleet provides motor vehicle fleet management and salary packaging services in operations across Australia, New Zealand and the United Kingdom. It began operating 30 years ago and has grown both organically and through acquisition.
The ownership structure has also undergone a number of changes culminating in an ASX listing in March 2014. South African conglomerate Super Group retains a controlling interest.
Since listing, the business has continued to grow. The fleet size has increased by 12% with growing numbers of new customers as well as strong customer loyalty. The customer base is spread evenly across government and the private sector.
SG Fleet displays many attributes of a sound business. Earnings per share growth has been excellent over the past five years and is forecast to continue over the next few years. The return on equity is about 30% and cash flow is very strong.
The balance sheet is sound, with more cash than debt, all of which has resulted in SG Fleet achieving Skaffold's highest ranking for the quality of a business of A1.
In mid-November SG Fleet announced the takeover of another novated leasing company, nlc.
The acquisition is seen as likely to add significant upside to earnings in future years.
The 2016 Skaffold estimate of value increased by 13% following the announcement, and the 2018 estimate increased by 15%. The deal will result in an increase in the amount of debt on the balance sheet, but it should remain below our preferred level of 40% net debt to equity.
Since listing the share price has almost doubled including a jump of 30% following the nlc acquisition announcement. It also pays a good dividend, with a forecast dividend yield of 3.6% for 2016.