Corporate Action: McMillan’s FVE Increased, Buyback Could Appeal Depending on Personal Circumstances

No-moat McMillan Shakespeare's strong second-half performance in its core Group Remuneration Services, or GRS, generated better-than-expected fiscal 2019 underlying NPAT of AUD 89 million. This beat our forecast of AUD 87 million. Despite fiscal 2019’s underlying NPAT being 5% lower than 2018, this was a strong result given the macroeconomic and regulatory headwinds it’s facing. Particularly impressive was the 7.4% rise in novated lease sales despite the precipitous 7.8% fall in Australian new car sales during the same period. The solid circa 7% uplift in GRS revenue for the year compensated for the flat revenue generated in its asset management, or AM, business and a fall in its retail financial services, or RFS business. Our confidence in the GRS drives an increase in McMillan’s fair value estimate to AUD 15.00 per share, from AUD 13.50. At our fair value estimate, the company has fiscal 2020 P/E of 13.6 times and a fully franked dividend yield of 5.1%.