Tim Boreham: These shares together in Electric Dreams

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

This is due to the country’s great distances, relatively high prices for electric vehicles and a lack of choice. Despite howls of pain from motorists at the Bowser, our juice is still cheaper than most other places, so there’s less incentive to make the transition.

However, expect the pace of change to accelerate as federal and state subsidies take hold.

Last month, the federal legislature passed legislation that would exempt electric vehicles from FBT under novated lease (salary wrap) agreements.

The FBT reforms, backdated to July 2022, should be a boon for listed novated leasing providers such as McMillan Shakespeare (ASX:MMS), Smart Group (ASX:SIQ) Spirit Eclipx Group (ASX:ECX).

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The incentive for novated lessees to switch is compelling: According to Citi numbers, someone making $90,000 who leased a $63,900 Tesla Model 3 would have $6,334 in additional after-tax income compared to the old regime -Take dollars home with you.

But dig deeper and there are other beneficiaries as companies transition their light vehicle fleets – and eventually heavy ones too – to electric vehicles.

According to medium-sized financing broker for SMEs (small to medium-sized companies). COG Financial (ASX:COG)Between 70 and 80 percent of SME assets are made up of vehicles such as vans, vans, bulldozers, heavy goods vehicles, excavators and bulldozers.

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

“It’s starting with a trickle, but there’s going to be tremendous activity in terms of the fundamental market that we’re in.”

COG acts as a broker aggregator and has stakes of between 50 and 100 percent in smaller financial brokers.

With so many branches closed, banks have come to rely heavily on brokers for lending, and this will increasingly be the case.

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But COG is also building its own loan book, with funds coming from its fund administration. COG also has a fledgling refurbished leasing business through its Fleet Network and beCarWise arms.

She also owns 16 percent of the factoring house Early Payment (ASX:EPY)which hit a snag last week when its biggest customer brought in the admins.

“We’re a cork, moving up and down the broader economy without taking particular risk or overexposure to any particular sector,” says Bennett.

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

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

“State government equipment for the transmission grid and other storage facilities prior to the transition to renewable energy … will likely increase demand for downstream utilities.”

In the year ended June 2022, COG arranged $6.7 billion in loans in 120,000 transactions.

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

At its annual shareholders meeting in November, the company pointed to net profit growth of more than 26 percent for the first four months of 2022-23, to which all major businesses contributed.

Management adds that a recession will be “short and shallow”.

Ord Minnett is forecasting a full-year dividend of nine cents per share for this year, which translates to an electrifying return of 5.8 percent.

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

The world’s largest truck maker, Volvo, deals with battery changes – à la servo gas cylinder changes – with a robot that pulls out the battery and replaces it in 10 minutes.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

For more wisdom from Tim Boreham, visit stick head.

Originally published as Tim Boreham: These Shares Together in Electric Dreams

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