Mcmillan Shakespeare Limited

MMS Details

Ceased to Become Substantial Holder: Mcmillan Shakespeare Limited (ASX: MMS) is engaged in salary packaging, asset management, vehicle finance, insurance and warranty. On 20^th September 2021, Vinva Investment Management Limited has ceased to become a substantial holder in the company.

FY21 Financial Summary:

• Growth in Topline and Bottom Line: For the year ended 30^th June 2021, the company recorded revenue amounting to $544.5 million as compared to $494.0 million in FY20. Underlying net profit after tax and acquisition amortization (UNPATA) for the year amounted to $79.2 million, reflecting growth of 14.8% over pcp. UNPATA has returned to 89% of pre COVID-19 levels.
• Rise in Margins: EBITDA for the year amounted to $130.7 million against $99.5 million in FY20, which led the EBITDA margin to increase to 24% from 20.1% in FY20.
• Increase in Cash Balance: The company possesses a robust balance sheet with a cash balance of $158 million as on 30 June 2021 against $91.4 million as on 30^th June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Disruptions: The ongoing COVID-19 pandemic and its potential adverse impact may disrupt the business growth.
• Regulatory Risk: Any unfavourable change in the regulatory conditions relating to consumer lending products could impact the company’s financial growth.

Outlook:

• The company’s strategy for FY22 revolves around developing a pathway to attain net zero carbon emissions for own operations (Scope 1, 2 and 3) by 2030.
• MMS would continue to invest in business infrastructure to create differentiation in FY22.
• The company has recently postponed its 2021 Annual General Meeting to 22^nd November 2021 from previously announced 22 October 2021.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: During FY21, the company declared final dividend of 31.1 cents per share, which took the total dividend for the year to 61.3 cents per share. The company is trading around its 52-week high level of $14.740.  The stock of MMS gave a return of ~30.82 % in the past six months. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a correction of high single-digit (in % terms). The company can trade at a slight discount to its peers, considering the COVID-19 disruptions, and regulatory risk. For the purpose of valuation, peers such as Smartgroup Corporation Ltd (ASX: SIQ), SG Fleet Group Ltd (ASX: SGF), Credit Corp Group Ltd (ASX: CCP) and others have been considered. Considering the expected correction as denoted by the valuation, solid rally in past few months, current trading levels and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $14.585, as on 01 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

MMS Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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