Stocks to Watch McMillan Shakespeare (MMS)

McMillan Shakespeare (MMS) | ASX Stocks to Watch | MMS Shares NewsMcMillan Shakespeare (MMS) is the leading provider of independent salary packaging services in Australia.

The group’s primary services include: salary packaging, remuneration policy design, motor vehicle lease management, information retrieval, procurement of motor vehicles and finance and administration of fuel card and service maintenance programs.

MMS occupies a unique market position: it is the only integrated provider of salary packaging and “company car” solutions, and its services are seeing a lot of demand.

Recent acquisitions have helped MMS win new lucrative business contracts, and it has been one of the market’s hot stocks throughout the past 12 months.

The benefits are reflected in its strong business momentum which saw MMS report solid first half earnings.

The salary packaging scene

Salary packaging is a lucrative business. Australia’s taxation system allows tax concessions for certain employee benefits and for certain industry sectors, which makes salary packaging attractive.

Eligible employees increase their disposable income by using pre-tax salary to pay for goods or services. They also use these benefits to attract and retain staff in a tight employment market.

Existing payroll systems do not cope well with salary packaging, and this is where MMS comes in.

McMillan Shakespeare administers budgets; deducts pretax salary; makes payments to service providers on behalf of an employee; and accurately reports transactions for tax purposes.

A high transaction load, a complex business process and the tax implications leads many employers to outsource this task to MMS.

Likewise, fleet management is a complex and capital intensive task. Many corporations choose to outsource management and/or lease their fleet using MMS.

First Half results

MMS saw its NPAT and EPS for the first half rise 83% on year. NPAT for the period came in at $20.5 million and EPS at 30.3 cents per share.

An interim dividend of 16 cents per share was declared, up from 10 cents a share on year.

Its Asset Management business recorded a NPAT of $6.6 million.

First half performance in its asset management segment exceeded expectations.

Asset Management capability has opened up significant new opportunities in the private sector for Group Remuneration Services. This has been a largely untapped market for MMS.

The company has been focusing on integration; maintaining momentum in its core business; and disciplined prioritisation of tasks and opportunities.

New business wins and cross sells continue to build momentum.

Looking ahead

MMS runs a unique business that is able to grow even during economic downturns, with the market running at 3-8% per annum.

A combination of the Group Remuneration Services business with the Asset Management business is helping to create a different and more capable organisation.

The company has been able to capitalise on demand for salary packaging and fleet management services, which involve a complex business process as well as tax implications, leading many employers to outsource this task to MMS.

Continued, disciplined development of its core business combined with increasing participation rates within its existing customer portfolio will help MMS going forward.

The company’s FY11 earnings are likely to exceed expectations given the typical seasonal bias favouring the second half of the year.

MMS has been in a strong uptrend since early 2009 and it will be one of the stocks to watch given its alliance with big-name (including government) clients and new contracts.

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