Australian Investment Blog
ASX:ECX 07/08/2018
Eclipx Group (ECX) downgrades growth expectations
Stock
Eclipx Group (ECX) $1.76 as 07/08/2018
Event
After market yesterday, ECX came out with an earnings downgrade and the stock has been walloped in trade this morning – down around ~40% at time of writing on a downgrade that was closer to ~10%. The diversified industrial business that does fleet management, vehicle rentals and online auctions (it owns Grays Online) said that profit would be in the range of $77- 80m for FY18 which implies growth on FY17 of 13-17% versus prior guidance for growth of +27-30%.
The current issues are around their Right2Drive brand and Grays Online which both have performed below expectations. The core leasing business remains strong. ECX say these are short term cyclical factors given a lack of delinquencies through banks (which supports the sale of equipment through Grays) and longer utilisation of equipment given the level of infrastructure build playing out across Australia.
Eclipx (ECX) Chart
Market Matters Take/Outlook
While ECX has a September year end, market consensus for profit sat at $88m for the year, so assuming the midpoint of the new guidance is achieved (implies $78.5m) this is an ~11% downgrade to market numbers. We’ve seen two brokers out with notes post the update with Citi downgrading from buy to hold and reducing their price target from $4.50 to $3.17 which is still a long way from the $1.76 the stock is trading at now. JP Morgan have maintained the rage keeping their $4.40 PT and overweight call.
There looks to be value in ECX on a longer term view after an overreaction in the market today.
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