Vehicle fleet leasing, fleet management and diversified financial services provider, Eclipx Group Limited (ASX: ECX) had announced in November 2018, that McMillan Shakespeare (ASX: MMS) and Eclipx group had agreed to merge pursuant to a Scheme Implementation Agreement post which MMS would acquire all shares in Eclipx. Further, as per the agreement ECX, shareholders were to receive 0.1414 MMS shares and an additional 46 cents for every ECX share, which resulted in a total value of $ 2.85 per ECX share.
ECX had recently provided an update on its financial performance for the first five months of FY2019. Eclipx reported a decline in Net Profit After Tax and Amortisation of 42.4 percent compared with the first five months of FY18, Eclipx also reported substantial issues in the Grays and Right2Drive and units; Further, Eclipx does not expect to meet FY19 earnings guidance provided in January this year, and furthermore Eclipx is not issuing a revised FY19 guidance. Based on these announcements, MMS declined to reconsider the end date set out in the scheme documents.
Both MMS and ECX have decided to terminate the SIA on 3 April 2019. Further, both the companies are released from any claims relating to SIA and the proposed scheme. As the outcome of this termination, ECX has agreed to compensate MMS for all the expenses that MMS has incurred to date with regards to the proposed scheme and SIA. The reported amount is around eight million dollars.
The share price has been in pressure since the past few months. Post the announcement of the SIA, the share price has dropped by almost 69 percent (as on 4 April 2019).
Post the fundamental news on the SIA termination and the stock price movement the question that arises is: “Is Eclipx still a likable stock?”
The company has embarked upon a transformation and cost reduction plan. This plan is overseen by an independently managed and resourced, Transformation Office. The responsibility of the Transformation office is to deliver a streamlined and more productive Eclipx operating model. The company expects an annualised cost reduction of approximately twenty million dollars i.e., ten percent reduction over the course of the next 18 months.
The plan of action is as follows:
The company aims at Integrating Fleet and Novated, zeroing in on the non-core businesses and re-structuring of the central support around the ongoing core fleet and novated businesses. Further, the company intends to simplify the Head office and shared services by streamlining and consolidating business unit support functions, accomplishing a reduced property footprint. Finally, the company intends to continue to explore productivity initiatives across the group primarily aided by back-office process improvement and improved data analytics and forecasting systems and capability.
It is to be seen in the next few months if the company could meet the set targets.
ECX is currently trading at A$ 0.845 on the ASX, and the market capitalisation currently stands at A$ 265.3 million as on 5 April 2019. Around 319.64 million shares are outstanding. The 52-week high is at A$ 3.580, and the 52-week low is at A$ 0.540. The company commands a PE of 4.190x and reported an EPS of A$ 0.198.
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