Ann: FY13 Results Guidance and proposed FBT chang, page-33

re: Ann: FY13 Results Guidance and proposed F... Tim Boreham - Criterion


McMillan Shakespeare share reaction overdone

by: CRITERION
From: The Australian
July 25, 2013 11:37AM

McMillan Shakespeare (MMS) $7.95

SHARES in the remuneration packager today were smashed by as much as 56 per cent to almost three-year lows, as trading resumed after a seven-day trading halt.

By mid-morning the stock had dived $7.95, down 48 per cent down, adding to the $2.64 (17 per cent) plunge before the July 16 trading halt.

The only listed salary packaging firm and also the biggest in the country, McMillan is in the eye of the storm created by the Rudd government's surprise crackdown on the FBT treatment of leases on cars used predominantly for private use.

In a highly anticipated four-page treatise, McMillan this morning attempted to quantify the expected "material adverse impact" on the company's future earnings.

But the company concludes current-year earnings guidance is impossible because the issue is in the lap of the political gods.

"The amount of this impact will be dependent on the outcome of the pending federal election and whether the proposed legislative changes will be passed as law following the election," the company says.

"The government appears determined to pass the amendments if it is elected but may not have a majority in the Senate. The opposition has publicly stated it is opposed to the measure and will not pursue it if elected."

As far as politically sensitive stocks go, McMillan takes the cake: a coalition victory and its business model is preserved; a Labor win and its earnings are compromised although the broader FBT-based packaging caper is hardly ruined.

With the bookies paying $1.28 for a Coalition victory and $3.55 for an unlikely Labor win, the odds are also in favour of McMillan.

That's the theory, anyway: bear in mind there scope for all sorts of shifting on a tax break that many folk argue shouldn't be there in the first place.

As for the 2012-13 year, the company said it expected to achieve a 2012-13 net profit of $61m-$63m, a healthy 15 per cent increment on the previous year. Given the uncertainties, the dividend is uncertain.

While it will provide further updates pending if material developments occur, McMillan's already shy management will "suspend all communications with investment analysts, shareholders, the press etc until after the election unless the position becomes clearer prior to then."

We won't notice the difference around here.

Criterion believes that even if the amendments survive the election, this morning's share reaction has been overdone because the affected leasing arrangements are only part of McMillan's business.

We'll back the bookies with a speculative buy call.

http://www.theaustralian.com.au/business/opinion/mcmillan-shakespeare-share-reaction-overdone/story-e6frg9lo-1226684862154