Eclipx sees a pick up after pandemic slowdown

Eclipx says cost-cutting has eased pressure on the business as novated leasings pick up following a sharp slump.

Car leasing slumped badly in March and April.

Car leasing group Eclipx says cost-cutting has eased pressures caused by the coronavirus, while business has picked up in recent weeks after a sharp slump.

Releasing its interim results on Wednesday, Eclipx booked a $13.2m net profit, attributing the turnaround from its 2019 half-year loss of $120.3m to the sale of non-core businesses.

It said pressures from the pandemic had slowed fleet and novated leases, as companies put new lease agreements on hold.

Eclipx chief executive Julian Russell said attention had turned to negotiating lease extensions to try to preserve liquidity.

Group earnings before interest, tax, depreciation and amortisation stood at $37.2m, a rise of $5.3m compared to the previous year.

Mr Russell said new leasing had dropped to around 25 per cent of its usual rate in April, amid disruption caused by COVID-19.

“Novated [leases] were severely hit in mid-March and through that period until about mid-April we saw that market really slow,” Mr Russell told The Australian.

Novated leasings have picked up in recent weeks, with order rates increasing to almost 70 per cent of the company’s run-rate pre-COVID-19, according to Mr Russell.

“In terms of new business write-ins, we feel pretty good about it. We are seeing some good activity through our pipeline,” Mr Russell said.

The company said in its update: “While it remains early, novated writings have picked up in recent weeks, and through late April and early May, novated order rates have increased to 66 per cent of the run-rate seen in the pre-COVID operating environment.”

Total revenue for the six-months to March 31 was $336.4m, a decrease of 4.9 per cent compared to 2019’s interim result.

Eclipx noted simplification plans were on track, with only its Right2Drive business still waiting to be sold at a targeted carrying value of $28m.

It flagged EBITDA loss from its remaining non-core business of $11.8m.

“The business has been significantly restructured under the new management team over the last nine months, including the removal of inefficient branches, management, staff and products,” the company said.

Eclipx flagged $12.5m of its $15m cost cut program in its core division had been achieved, with the remainder set for completion by the end of fiscal 2021.

Selling used fleet cars had also continued throughout the downturn.

Equity researchers at UBS noted income from end-of-lease vehicle sales remained a key risk factor, anticipating the group would only be able to sell about 1000 vehicles out of an estimated 6000 in the second half.

According to the brokerage, the average pricing in used-car markets is down 15 per cent from pre-COVID-19 levels.

UBS has retained a buy rating for Eclipx listed stock, but has lowered its 12-month price target from $2.20 to $1.40 per share.

As at 12.58pm, the company’s shares were trading up 5.42 per cent at 88 cents per share.