##{"id":60569,"date":"2012-09-13T18:38:16","date_gmt":"2012-09-13T08:38:16","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/09\/13\/headwinds-dont-change-mcmillan-shakespeares-solid-outlook\/"},"modified":"2012-09-13T18:38:16","modified_gmt":"2012-09-13T08:38:16","slug":"headwinds-dont-change-mcmillan-shakespeares-solid-outlook","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/09\/13\/headwinds-dont-change-mcmillan-shakespeares-solid-outlook\/","title":{"rendered":"Headwinds Don’t Change McMillan Shakespeare’s Solid Outlook"},"content":{"rendered":"

\n\t – Goldman Sachs has reviewed earnings outlook for McMillan<\/span> Shakespeare
\n\t – Expects solid earnings growth in coming years
\n\t – Retains a Buy rating<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tA market leading position in salary packaging services and a strong share of the fleet management and associated leasing market has enabled McMillan<\/span> Shakespeare ((MMS)) to deliver solid earnings growth since 2005. The trend continued in FY12<\/span>, with the company delivering earnings per share (EPS) growth of more than 20% for the year. <\/p>\n

\n\tHaving reviewed the annual report for McMillan<\/span> Shakespeare, Goldman Sachs takes the view profits from the re-sale of used vehicles, which contributed 12% of profit before tax in FY12<\/span>, may fall a little in FY13<\/span>. This is due to a lower number of vehicles coming off lease and an expected decline in used car prices.<\/p>\n

\n\tA significant downturn in car prices would force McMillan<\/span> Shakespeare to review values for its existing fleet, with Goldman Sachs suggesting a 5% reduction would generate a $12 million pre-tax writedown<\/span>. This would equate to 13% of profit before tax.<\/p>\n

\n\tGoldman Sachs expects any decline in car prices is likely to be in the order of 2-4%, with the resulting earnings impact to be more than offset by growth in the fleet and Remuneration Services division. As a result, while earnings composition may be a little different in FY13<\/span>, Goldman Sachs still expects net profit after tax for McMillan<\/span> Shakespeare can grow by 15% in FY13<\/span>.<\/p>\n

\n\tSolid earnings growth should continue in future years, as Goldman Sachs currently forecasts capitalised<\/span> annual growth rates in earnings for FY12-FY15<\/span> of 11% in EPS terms. EPS forecasts for Goldman Sachs stand at 81.8c for FY13<\/span> and 91.6c for FY14<\/span>, which compare to consensus estimates according to the FNArena<\/span> database of $82.4c and 92.1c respectively.<\/p>\n

\n\tThere is some potential downside risk to earnings from job cuts announced in the Queensland State Budget, as Goldman Sachs notes jobs will be cut in Queensland Health where McMillan<\/span> Shakespeare is the sole provider. The Queensland Government is McMillan<\/span> Shakespeare's largest client in the Remuneration Services division.<\/p>\n

\n\tAny impact from these job cuts is unlikely to be significant, as Goldman Sachs estimates the net profit impact is likely to be around 2% on an annualised<\/span> basis. Forecasts have been adjusted accordingly. There is a minor positive impact on price target stemming from higher market multiples, Goldman Sachs lifting its target 2% to $13.63. <\/p>\n

\n\tThis compares to a consensus price target according to the FNArena<\/span> database of $13.73, with targets ranging from BA Merrill Lynch at $13.50 to Citi<\/span> at $14.14. Relative to the current share price, the consensus target in the database implies share price upside of around 10%.<\/p>\n

\n\tGoldman Sachs sees enough valuation upside to retain a Buy rating on McMillan<\/span> Shakespeare, which matches the Buy ratings from the three brokers in the FNArena<\/span> database to cover the company. Dividends are also solid and add to the attraction of the stock, forecasts for Goldman Sachs implying a fully franked yield of 4.1% for FY13<\/span> and 4.6% for FY14<\/span>. <\/p>\n

\n\tOver the past year the stock has traded in a range of $7.96 to $12.62. <\/p>\n

\t $\"\"$ <\/p>\n

\n\tTechnical limitations<\/p>\n

\tIf you are reading this story through a third party distribution channel and you cannot see charts included, we apologise<\/span>, but technical limitations are to blame.<\/em><\/strong><\/p>\n

\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"