Following a market update released yesterday, McMillan Shakespeare Ltd’s [ASX:MMS] share price has plummeted downwards by 9.96%.
It appears shareholders are losing faith in the salary packaging company, after they revealed they were facing ‘challenging conditions in the retail car market, with lower than expected volume and revenue growth’. They also have experienced an increase in contract extensions and a delay of contract income for their Australian asset management business. More on that below.
After what has already been a volatile month for the company, their shares are currently trading at $12.03 apiece. And it’s not looking so positive from here…
Disappointing results McMillan’s share price
It’s been a tough few months for the company.
When the news broke yesterday, McMillan experienced a 5% drop in their price. And after a disappointing six months for the company, it appears shareholders are starting to distance themselves from the stock.
Monday’s update detailed an expected underlying net profit after tax (UNPATA) of $87–89 million, compared with a current broker estimate of around $92 million. Currently their one year return is sitting at -28.43%, representing a disappointing loss. However, these figures do not represent the situation regarding the UK contract, which could impact the actual result.
Regarding an unnamed customer, being a car manufacturer, McMillan’s UK asset management business has estimated that they will obtain a provision of $3.7 million (after tax) due to this customer being placed into administration. This ‘extremely disappointing outcome’ has been assured to be a once-off issue, and McMillan believe they have acted accordingly.
In some good news from McMillan, the company has revealed they have obtained surplus capital and franking credits, following a more ‘conservative approach to gearing and strong operating cash flow’. However, it seems like when compared with the facts, it’s not enough to make shareholders confident.
Additionally, the company announced they would be commencing an off-market share buyback of up to $100 million during the second half of 2019.
What could this mean for investors?
It may be wise to tread carefully around this news. Although it may be cliché to run from a stock when everybody else does, we implore you to look deeper. With a difficult six-month history, McMillan will have to employ some further damage control to recover.
Regards,
Ryan Clarkson-Ledward,
For Money Morning
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