Mcmillan Shakespeare Limited 

MMS Details

Challenges in Retail Financial Services: In the recent update, MMS advised that it expects $44 million of Underlying Net Profit After Tax for the first half of the financial year ending 30 June 2018. Its Group Remuneration Services and Asset Management segment is performing in line in both Australia and UK but its Retail Financial Services (RFS) segment performance is below expectations. During Financial Year 2018, RFS has been reorganised into two new business streams, NFC and UFS, and into a retail business which operates the warranty, insurance and Money Now finance business. This new aggregation of business has been performing in line with expectations, but regulatory uncertainty continues to impact the financial performance of the retail business. Its RFS business is expected to generate approximately 3% of FY18 MMS UNPATA. Based on the preliminary half-year work carried out to date, MMS is planning to recognise an impairment charge to the carrying value of goodwill and other intangible assets for the RFS retail business in its half year accounts which will be in the range of $9-14 million after tax.
 

2018 Growth Plan (Source: Company Reports)
 
In 2017, MMS delivered revenue growth of 1.6% that resulted into $513.0m and paid full year dividend of 66.0 cents per share which were fully franked, a 4.8% growth over the prior year. In 2017, MMS also launched Maxxia/ RemServ Wallet and Bus Travel benefits which will improve productivity and margins. NDIS (National Disability Insurance Scheme) was designed to give people with disability choice over the services they use and a control over their funding. NDIS will support 460k participants by 2020 which will grow the sector funding to $22 billion annually. It also broadened its UK asset finance platform by way of acquisitions of EVC and Capex. Its salary packages increased by 8.4%, asset managed units increased by 12.3% and Novated leases increased by 7.2% on prior year. So, by looking at the overall picture, MMS might appear to be performing well and on track as per FY18 plans. On the other hand, MMS was expected to outperform the market in FY17 but unfortunately it could not meet the expectations and delivered an ROE of 18.3% which was less exciting over the past few years’ returns of over 23%. Further, risks related to regulatory and market uncertainty prevail in the Retail Financial Services division. Given the scenario, we recommend investors to take profits on the stock at the current price of $17.50


MMS Daily Chart (Source: Thomson Reuters)

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