Tim Boreham: These shares together in electric dreams

In Australia, the transition to electric vehicles (EVs) has so far seemed more glacial than the full-blown revolution elsewhere.

The factors to blame are the country’s long distances, the relatively high prices of electric vehicles and the lack of choice. Despite the howls of pain from the bowser riders, our juice is still cheaper than most other places, so there’s less incentive to make the transition.

But expect the pace of change to accelerate as federal and state subsidies kick in.

Last month, federal parliament passed laws that would exempt electric vehicles from FBT under novated lease agreements (wage packaging).

Dated before July 2022, the FBT reforms are likely to be of benefit to listed novated lease providers such as McMillan Shakespeare (ASX: MMS), Intelligent Group (ASX: SIQ) i Eclipse Group (ASX: ECX).

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The incentive for novice renters to switch is compelling: According to Citi’s numbers, someone earning $90,000 and leasing a $63,900 Tesla Model 3 would take home an extra $6,334 in after-tax income, relative to the old regime

But dig deeper and there are other beneficiaries as companies transition their fleets of light- and eventually heavy-duty vehicles to electric vehicles.

According to the SME (small and medium-sized enterprise) asset financing intermediary. COG Financial (ASX: COG)between 70 and 80 percent of the assets of SMEs consist of vehicles such as vans, utes, excavators, heavy transport, excavators and bulldozers.

COG CEO Andrew Bennett says 200,000 light trucks and 100,000 buses will change over the next three to five years.

“It starts with a trickle, but in terms of the core market we operate in, there will be a lot of activity.”

COG acts as an aggregator of brokers, having taken a stake of between 50% and 100% in smaller financial brokers.

Having closed so many branches, banks rely heavily on brokers for loan distribution and this will increasingly be the case.

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But COG is also building its own loan book, with funding coming from its fund management operation. COG also has a fledgling leasing business, through its fleet network and beCarWise arms.

It also owns 16 percent of the factoring house Advance Payment (ASX: EPY)who last week found a problem with their largest customer by calling the admins.

“We’re a cork that goes up and down in the overall economy without taking on any particular risk or being overly exposed to any particular sector,” Bennett says.

According to Ord Minnett analyst Ian Monroe, COG’s brokerage platform accounts for up to 20 percent of SME asset financing.

“COG is well positioned to benefit from buoyant infrastructure market conditions,” it says in a report.

“Government government upgrades to the transmission network and other storage facilities ahead of the transition to renewable energy … are likely to increase demand for downstream operating equipment.”

In the year to June 2022, COG arranged loans of $6.7 billion, across 120,000 transactions.

COG also reported revenue of $323 million, up 20%, and underlying net profit of $25 million, down 41%.

At its November AGM, the company reported net profit growth of more than 26 per cent in the first four months of 2022-23, with contributions from all key divisions.

Management adds that if there is a recession, it will be “short and shallow.”

Ord Minnett expects an annual dividend of nine cents a share this year, implying an electrifying fully franked yield of 5.8 percent.

Bennett says that while buses and light rail have been electrified, advances in battery capacity and charging means heavier trucks and other machinery will follow within three to five years.

The world’s biggest truck maker, Volvo, is looking at battery swaps, a servo-powered gas bottle swap, with a robot that removes the battery and replaces it in 10 minutes.

This story does not constitute advice on financial products. You should consider getting independent advice before making any financial decisions.

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Originally published as Tim Boreham: These shares together in electric dreams

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