McMillan Shakespeare shares flat after reporting lower profits

The McMillan Shakespeare Limited (ASX: MMS) share price ended the day relatively flat following the release of its first-half results.

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The McMillan Shakespeare Limited (ASX: MMS) share price ended the day relatively flat, down 0.49% following the release of its first-half results. Although half-year profits declined during the period, full-year guidance remains unchanged. 

What did McMillan Shakespeare report? 

For the six months ended 31 December 2019, McMillan reported revenue of $270.4 million, down 1% from the prior corresponding period (pcp). 

Expenses for the half-year increased marginally to $223 million, up from $222.8 million in 1H19. Earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $57.2 million, down 11.8% from $64.9 million in the pcp. 

First-half underlying net profit after tax and acquisition amortisation (UNPATA) was $37.8 million, down 10.3% from $42.1 million in the pcp. Underlying earnings per share declined 8% to 46.8 cents and a dividend of 34 cents per share was declared, fully franked. 

During the half, McMillan completed an $80 million share buyback of approximately 7% of issues shares. There was strong demand for the buyback resulting in the balance of tendered shares being scaled back by 40.89%. 

Additionally, McMillan reported having $50.9 million cash at bank as at 31 December. Excluding fleet funded net debt, the group had net cash of $24.6 million. 

Segment performance

The Group Remuneration Services division contributed $108.8 million to revenue, up from $106 million in 1H19, and $31.1 million to UNPATA, up from $29.7 million.

Asset Management contributed $123.1 million to revenue for the half, down from $124.2 million, and $5.1 million to UNPATA, down from $9 million.

Retail Financial Services contributed $38.3 million in revenue in 1H20, decreasing from $42.3 million in the pcp, and $2.2 million to UNPATA, representing a decline from $3.8 million. 

McMillan reported continued growth in customers and assets which bodes well for future profitability. Salary packages increased 5.6% compared to the pcp to 358,000 accounts.

Novated leases increased 9.7% to 71,600 despite a backdrop of weak Australian new car sales. Novated yield, however, declined by 4.4% due to reduced funder credit appetite and insurance penetration combined with a change in funding mix. With this, sales of insurance products have moderated and the risk appetite of lenders has decreased in the wake of the Royal Commission, impacting novated lease margins. 

Outlook

FY20 UNPATA guidance remains unchanged at a range of $83 million – $87 million, although McMillan notes that risks remain around the lender appetite of new financiers and the level of new car sales. 

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