Smartgroup Shares Jump 5% Among ASX Gainers as Novated Leasing Specialist Extends Strong 49% Annual Rally

SYDNEY — Shares of Smartgroup Corp. rose more than 5% on Thursday, making the employee benefits and vehicle leasing company one of the best performers on a weak day for Australian stocks.

The stock gained 63 Australian cents, or 5.42%, to close at A$12.25. It traded between A$11.56 and A$12.38, with about 766,000 shares changing hands. The company's market value is about A$1.7 billion.

The broader S&P/ASX 200 fell 0.43%. Industrials, the sector that includes Smartgroup, was the best-performing part of the market, rising about 0.9%.

Smartgroup did not release any price-sensitive announcements on Thursday.

A strong year

The rise added to a strong run for the Sydney-based company, which provides salary packaging, novated leasing and fleet management services to employers including government agencies, hospitals, schools and charities.

The shares are up nearly 49% over the past year. Over the past 52 weeks, the stock has traded between A$7.22 and A$13.65, and Thursday's close puts it about 10% below that high.

Novated leasing lets employees lease a vehicle through their employer and pay for it from pre-tax salary. Electric vehicles have become a major source of growth because eligible battery electric cars are exempt from Australia's fringe benefits tax under rules introduced in 2022.

Record first half

In August, Smartgroup reported record results for the six months to June 30. Revenue rose 13% to A$179.5 million, and operating EBITDA rose 16% to A$73.8 million. Its EBITDA margin improved by 1 percentage point to 41%.

Net profit after tax and amortization rose 11% to A$42.4 million. The company declared an interim fully franked dividend of 21.5 Australian cents a share, up 10%.

Novated leasing settlements rose 17%, and new lease vehicle orders increased 34%. Orders for new battery electric vehicles jumped 162% and accounted for 68% of new novated leasing orders.

"Market conditions remained favourable during the period, with strong consumer demand for electric vehicles," Chief Executive Scott Wharton said when the results were released.

The company has set a target to lift its EBITDA margin to the mid-40% range in 2027 as it invests in technology and improves efficiency.

Institutional buying

Macquarie Group has increased its stake in the company. Earlier this month, Macquarie said its voting power had risen to 7.32% from 6.18%.

Smartgroup has also been adding partners to grow its leasing business, including agreements with vehicle financiers and car brands such as Hyundai Capital Australia and the Chery and Omoda Jaecoo brands.

Policy risk

Not all analysts are convinced the rally can continue. Morgan Stanley has a hold rating and an A$11 price target, below the current share price.

Smartgroup's biggest risk is a change in government policy. Novated leasing demand depends heavily on tax incentives. When the fringe benefits tax exemption for plug-in hybrid vehicles ended, plug-in hybrid orders fell sharply.

Any future change to the tax treatment of electric vehicles could quickly reduce demand.

Higher interest rates are another concern. The Reserve Bank of Australia raised its cash rate by a quarter point in September, which could make leasing more expensive and affect demand for new cars.

What's next

Investors will watch for updates on novated leasing orders and settlements, progress toward the company's margin target and any federal policy changes affecting electric vehicles.