Margins Colour McMillan Shakespeare’s Outlook

Australia | Aug 23 2019

Brokers say McMillan Shakespeare could outperform as car leasing and salary packaging businesses continue to grow.

-Investment in Beyond 2020 program to help expand margins
-Increased automation will add to margin expansion
-Novated leasing volumes have proven to be very resilient in the face of falling new vehicle sales.
-NDIS administration unit Plan Partners posts first profit, with momentum going into FY20

By Nicki Bourlioufas

Shares in car leasing and salary packaging company McMillan Shakespeare ((MMS)) jumped after the company announced an $80m share buyback and rise in net profit after tax (NPAT).

Analysts are upbeat on the company's earnings outlook, expecting margin expansion driven by the company’s Beyond 2020 program Plan Partners expansion into the disability sector.

Net profit jumped 26.6% to $63.7m for the year to June 30, while underlying net profit, which strips out one-off items, fell -5.1% to $88.7m. While that was down, it was at the higher end of management's guidance. Group revenue rose 0.8% to $549.7m on the previous period.

The result was underpinned by strong performance in the group’s core Group Remuneration Services (GRS) business, with a 2.5% increase in salary packages and 7.4% increase in novated leasing units despite weak new car sales.

McMillan Shakespeare said it would return around $80m to shareholders through an off-market ordinary share buyback, to be funded from cash reserves. The buyback is expected to boost earnings per share (EPS), as the number of shares on issue will be reduced.

Investment in the group’s Beyond 2020 comprised $3.1m in operating expenses and $6.0m in capital expenditure for FY19, assisting to drive improved productivity and novated lease conversion rates during the year, with the full program impact to be realised in future years. The National Disability Insurance Scheme (NDIS) administration business Plan Partners recorded its first profit of $580,000, with $400,000 being the company's share.

Margin expansion expected

One of the most upbeat brokers is Citi, which says the NDIS business Plan Partners is gaining momentum will help McMillan Shakespeare achieve sustained growth in FY20 and beyond. In addition, the company's robotics and automation program will improve efficiency and margins.

The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE