The government announces a change to FBT and MMS loses $700 million in market value.
MMS provides salary-packaging administration and integrated fleet management services to a variety of state and federal government agencies, hospitals, charities and private sector organisations across Australia.
MMS provides administrative services in respect of salary packaging and facilitates the settlement of motor vehicle novated leases for customers, but does not provide financing.
The segment also provides ancillary services associated with motor vehicle novated lease products such as insurance and aftermarket products. They also provide financing and ancillary management services associated with motor vehicles, commercial vehicles and equipment.
Overall, the current consensus view is that the proposed changes to FBT are a negative for MMS, regardless of the outcome.
The group’s full year 2014 earnings will most likely be downgraded from current levels, with the magnitude of the downgrades yet to be determined but may be as high as 30%.
At this stage, the company has not provided any future earnings guidance.
We estimate that the value of the company is now between, $5 to $10 per share.
The company was trading at $18 per prior to the announcement.
We expect the ongoing uncertainty regarding this matter to have an adverse impact on the share price and valuation of the company.
We expect the market to assign a lower valuation premium to MMS’ business model given the reality of regulatory risk constantly plaguing the future of the company.
Sell is our recommendation until we see a clear outcome regarding the proposed FBT changes.
For more information on McMillian Shakespeare Limited (MMS) please contact us on 07 4771 4577.