Mcmillan Shakespeare Limited (ASX: MMS) showed more signs of a solid business recovery with half-year revenue and earnings up 12% and a remarkable 62%, respectively. The salary packaging and asset management service provider has steadily returned to earlier levels of profitability from two years ago.
Here are the half-year results highlights:
– Revenue $181.2 million, up 12% from $161.5 million
– Operating earnings before tax $43.4 million, up 46% from $29.8 million
– Net profit after tax (NPAT) $31.1 million, up 62% from $19.6 million
– Earnings per share 41 cents, up 62% from 25.4 cents per share
– Dividend per share interim dividend of 25 cps, up 19% from 21 cps
The biggest gains came from its group remuneration services segment, which handles salary packaging for business and government employees and overseeing novated vehicle leasing. It achieved a whopping 86% increase in operating earnings on the prior corresponding period and a 12% increase on the first half of financial year 2013.
Mcmillan Shakespeare Group earnings per share (EPS) (Source: Company presentation).
That's significant because it was in July 2013 when the previous Labor government proposed changes in the way fringe benefits tax deductions are calculated. Those changes would have severely impacted Mcmillan Shakespeare's business. Investors dropped the stock like a hot potato, sending share prices down more than half.
The proposed changes were never enacted, yet the stock has languished since then. Long-term investors who could see this temporary business setback for what it was had the opportunity to pick up a quality company at a discount.
Since mid-December roughly two months ago, the stock has rallied 25.2% from $9.82 to $12.29.
In an article earlier this month, I wrote about how Mcmillan Shakespeare was getting back to previous business trends and was an opportunity for Foolish investors. Occasionally, businesses go through rough patches due to industry woes or individual circumstances.
What Foolish investors do is focus on the bigger picture for a stock. If the fundamentals are ok and the business is showing improvement, they should be ready to pick up beaten-down stocks when Mr. Market gets bored or depressed about a stock's short-term prospects.
I still think Mcmillan Shakespeare offers long-term investors a good growth opportunity. The stock also yields a healthy 4.4% yield fully franked to satisfy term deposit savers as bank interest rates keeping falling.
