The following article by John Abernethy featured in The Australian, 1 December 2010
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MMS is a provider of salary packaging, administration, remuneration and fleet management services in Australia.
COMPANY: McMillan Shakespeare Limited
ASX CODE: MMS
INDUSTRY: Financial Services
DIVIDEND PER SHARE: 24c
FORECAST DPS: 36c (2011/12), 40c (2012/13)
The company services the employees of a number state and federal government agencies, hospitals, charities and large private sector organisations.
Salary packaging is a way in which employees can increase their disposable income by using their pre-tax salary to pay for goods and services. These goods and services, paid out of the employee’s pre-tax income, are known as “fringe benefits”. MMS identifies and administers the salary packaging opportunities for employees to maximise their disposable income. In April, MMS announced the acquisition of Interleasing. This business arranged the leasing for Holden vehicles across Australia. MMS funded this business from retained cash and new bank funding. The business is earnings per share positive and we expect the return on equity to be maintained at a highly attractive 40 per cent level.
A strong economy is crucial to the success of MMS and the current economic outlook for Australia is positive. There are now clear indicators showing employment growth and a lift in motor vehicle sales.
MMS has managed to maintain a very high return on equity as it has grown without the need to raise additional equity. Profits have risen from $11 million in 2006 and should exceed $40m in 2011.
Dividends have consistently grown in recent years and we expect a fully franked dividend of 36 cents this year representing a 5 per cent dividend yield. Further, because no new shares have been issued with the Interleasing acquisition, the company is expected to lift its dividend in the current year to match the increase in profit. MMS is presently trading at an 8 per cent discount to the valuation of $7.86.
Source: The Australian, 1 December 2010