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MMS

Why did McMillan Shakespeare Rally 16.6% Today?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

McMillan Shakespeare (ASX: MMS) outperformed the broader industry today with its release of FY19 results. The company achieved moderate revenue growth of 0.8% against an 8% decline in new car sales, highlighting their ability to grow market share against a challenging industry backdrop. This put pressure on the share price of SG Fleet (ASX: SGF) today, which is seen by many as the company most likely to pay for McMillan’s market share gains as their main listed competitor.

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McMillan Shakespeare (ASX: MMS) office space (Credit: McMillan Shakespeare)

The firm is Australia’s provider of salary packaging and novated leasing services. This is attractive to employees, who can gain tax advantages from novated leasing, due to its treatment as a benefit allowing employees to put it through their pre-tax income. While leasing a car is more expensive than buying one over the long term, leasing is sometimes cheaper after taking account of the associated tax advantages. The business also operates in the UK and New Zealand, presenting attractive growth opportunities which can help the company expand from it’s existing base of market domination in Australia. Their UK operations were started through an acquisition, which McMillan has successfully managed since then.

One key reason why the share price has rallied is the announcement of an $80m share buyback. While many investors were expecting results from MMS to be much worse and the company provide its ability to grow against challenging market conditions, the underlying fundamentals don’t fully explain the share price gain. An off-market share buyback substantially increases the demand for shares, helping drive the price up over time. Realising this, traders are moving into the stock today in the hope of making a profit as management drives the price up through the buyback. Nevertheless, with MMS trading at 20 times earnings, the company will need to eventually support the multiple with better results in a good market, or else investors may start to question the multiple.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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