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Kalkine Daily 11/09/2014 + McMillan Shakespeare

Sep 11, 2014

The S&P 500 was up by 7.25points or 0.36%on Wednesday to 1995.69. A rebound in Apple shares helped push U.S. stocks higher on Wednesday while the energy sector lagged as crude prices fell. Apple jumped 3.1 percent, the most since April, as it rebounded from declines after unveiling new products yesterday. Garmin Ltd. rallied 4 percent for the second-best performance in the Standard & Poor’s 500 Index. 

The FTSE Eurofirst 300 was flat after its Asia Pacific peer slid 0.7% as concerns grew about the health of China’s economy. Tokyo stocks initially fell after figures from Japan’s cabinet office showed Japanese machine orders rose more slowly than expected in July, suggesting companies are still investing cautiously. However Nikkei 225 recovered its poise to add 0.3% as additional weakness in the YEN was noted.


S&P 500 Daily Chart (Source – Thomson Reuters)

S&P ASX 200was down by 33.6points or 0.60%on Wednesday and closed at 5574.3 points. Melbourne Institute and Westpac’s index of consumer sentiment plunged 4.6 per cent in September after a 3.8 per cent rise in August. Households were more concerned about employment and the economic outlook. JB Hi-fi and Harvey Norman eased 0.2 and 1.3 per cent to $17.05 and $3.72 respectively.

Iron oreshed a further 1.2 per cent to $US82.20. World oil prices have dropped after OPEC trimmed its oil demand growth forecast and a US supply report showed surprisingly high inventories. Today Myer full year results, Sigma Pharmaceuticals interim results would be released. The following stocks will tradeex-dividend today:

Goodman Fielder, Homeloans, IRESS, Lindsay Aust, Melbourne IT, Northern Star Resources, Retail Food Group, Shine Corporate.


J B Hi Fi Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 


Stock of the Day – McMillan Shakespeare (MMS)

McMillan Shakespeare is a leading Australian provider of salary packaging and motor vehicle leasing services. It has been a strong performer since listing in 2004 generating impressive returns on invested capital. The business model is semi scalable with each new McMillan consultant enabling it to grow the number of employee accounts under management up to a point before it has to hire another consultant.


MMS Normalised Earnings Per Share (Source – Company Reports)

A tumultuous year in which McMillan Shakespeare suffered a 34% decline in first half normalized net profit ended well with fiscal 2014 full year normalized net profit ending down 10% to AUD 56.1 million. Indeed the second half bottom line lifted 12% year on year to AUD 36.4 million, as the key remuneration services division delivered a 14% increase in earnings before interest and tax or EBIT. It enjoyed a return to business as usual as the coalition government maintained the status quo on treatment of fringe benefits tax.


Normalised NPAT Performance (Source – Company Reports)
 
Accounting for 35% of the earnings base the asset management division suffered a 3% fall in full year EBIT to AUD 31.7 million. Still it posted a 9% lift in assets under finance and management to AUD334 million. Fundamentals remain sound with staff productivity improving and customer satisfaction remaining high for remuneration services, fleet assets continuing to grow in asset management and the balance sheet is in solid shape.



MMS Daily Chart (Source – Thomson Reuters)

Notwithstanding McMillan’s solid returns on invested capital and rapid growth, it is important to bear in mind that most of its core business only exists because of tax concession. This could easily be removed in the future as governments wonder pressure to produce budget surplus target such concessions which effectively reduce government revenues. We believe the stock is expensive at the current price and would review the stock at a later date.


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