McMillan Shakespeare Ltd (ASX: MMS) shares are having a tough finish to the week.
The $1 billion ASX 300 stock is down 10% to $13.88 in morning trade.
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Why is this ASX 300 stock crashing?
Today's decline appears to have been driven by the release of a broker note out of Bell Potter this morning.
According to the note, the broker has downgraded the salary packaging company's shares and taken an axe to its valuation.
Bell Potter advised that it has become cautious on the stock amid risks around vehicle order growth. It explains:
We review our investment thesis and cyclical drivers, forming a neutral view that MMS should demonstrate sales growth YOY at the upcoming interim result (showing vehicle supply improvements) before future revenue is dependent on orders. We see greater risk around the prospects of order growth given increased competition in the private segment, where sales have fallen to a low, and static EV penetration.
Our analysis of order growth shows MMS building EV volumes as a replacement for ICE, which could pose downside in 2H25e. We expect contract specific sales churn, and strong demand for PHEVs should face headwinds when FBT exemption rolls off Mar'25.
Downgraded to neutral
The note reveals that Bell Potter has downgraded the ASX 300 stock to a neutral rating (from buy) and slashed the price target on its shares to $15.80 (from $21.00).
This was only marginally ahead of where its shares closed yesterday's session. Whereas its previous recommendation implied potential upside of 36% for investors. Quite a difference!
Commenting on the downgrade, the broker said:
Downgrade from Buy to Hold. MMS is cycling a difficult comp with fading support from carry over revenue. We see emerging risks to the downside, predicated on 1) negative volume momentum, segment exposure and a reversion in EV sales back to long-term trend (FY23/24 presented material growth); and 2) margin disappointment. Balancing this is the multiple de-rating and uplift in BEV and PHEV sales.
Our revised earnings see MMS trading at ~12x FY25e P/E, in-line with historical levels and below the Pacific Equity Partners' Dec'24 acquisition of SG Fleet for $1,227m. Implied price to earnings was b/w 12.9x and 13.9x FY25e NPATA guidance or 8.3x FY24 EBITDA. Our price target falls to $15.80 p/s on lower earnings and the multiple we apply in our sum of the parts approach, reflecting order growth vs traded peers at this point in the cycle.
The ASX 300 stock is now down 21% since this time last year.
