Australia | Nov 08 2021
New vehicle supply constraints during the covid pandemic have benefited the used vehicle market, and driven strong results for Eclipx Group, but analysts are looking post-pandemic to consider growth sustainability.
-Market conditions drove a strong FY21 result
-Full-year results beat already upgraded forecasts
-Mark trends to continue to drive growth in the next year
By Danielle Austin
Positive trends in the used vehicle market have benefited vehicle fleet leasing and fleet management company Eclipx Group, which exceeded expectations with its FY21 results. The company reported profit after tax of $86.1m, an 81% year-on-year increase, and end-of-life income was notably up 108% while group costs fell -2%.
The used vehicle market has benefited from supply constraints on new vehicles during the pandemic, which has driven abnormal operating conditions including record end-of-lease income and used car prices, low credit and fleet provisions, and beneficial margins on elevated lease extensions.
Macquarie highlighted that new vehicle supply constraints are expected to continue through to late 2022, but analysts are looking are looking to other indicators of growth post-pandemic.
Guiding to sustainable growth
While market conditions have been favourable for Eclipx in the last year, the company expects to be able to sustain continued growth after the market demand normalises, although at a slower growth rate. Analysts at both Credit Suisse and Macquarie agree with this sentiment, noting pipeline levels which are more than twice that of 2019 levels, as well as tender wins with both new and existing clients, should support sustained asset growth beyond the normalisation of vehicle demand. The company does expect to continue to feel the benefits of supply constraints in the coming year, and expects near-term end-of-lease levels to remain above pre-covid levels.
Credit Suisse expects Eclipx will experience a normalised year in FY23, but highlights driving factors, including recent investment in sales capability and digital investment platforms, should support continued underlying growth. The broker also noted that current benefits impacting on Eclipx are understood by the wider market to not be ongoing, and this is already captured in current estimates.
Similarly, Macquarie expects the company will largely see an impact in earnings in FY23, driven by the normalising of vehicle supply chains. The broker reiterated the company’s expectation that asset growth will return as these supply chains normalise, and pointed to pipeline strength and contract wins as substantiating this.
Credit Suisse retains its Outperform rating and increases its price target to $2.90 from $2.60, after increasing earnings per share forecasts by 22% for FY22 and 3.9% for FY23, while profit after tax forecasts are updated 18% for FY22 and -0.7% in FY23, although the broker notes this slight decline is offset by other factors.
Macquarie retains its Outperform rating and its target price increases to $2.82 from $2.69. The broker updates earning per share forecasts by 28.8%, 14.4% and 15.2% for FY22, FY23 and FY24 respectively. It was also noted that the biggest risk to the target price was a potential moderation in vehicle pricing before constraints on supply normalise. The broker also highlighted that Eclipx is aiming to be a leader in fleet electrification by FY23, a goal which will likely be supported by the company’s position as the sector’s only carbon-neutral player.
Morgan Stanley retains its Overweight rating and target price of $2.70. The broker noted it expected both FY22 operating expenditure and below-the-line items to be either flat or below FY21 results.
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