Vehicle lease provider McMillan Shakespeare Limited (ASX: MMS) could be set for a strong performance on the S&P/ASX 200 (INDEXASX: XJO) today after it released its preliminary final report after market close yesterday.
Here are the highlights:
The What
- Revenue rose 12.1% to $389.6m
- Net Profit After Tax (NPAT) rose 22.8% to $67.49m
- Underlying* Net Profit After Tax rose 25.8% to $70.2m
- Earnings per share of 86.8 cents, up from 72.7 cents in 2014
- Total dividends of $0.52 per share (4% yield at today's prices)
- Acquired automotive finance provider Presidian Holdings during the year; excluding the acquisition net profit grew 20.2%
- $85.7m cash at bank
- Reasonable financial position with gearing (net debt divided by net debt + equity) of 46% and interest cover** of 12.5 times
*excluding one-off costs such as on acquisitions
**the amount of times that the annual interest expense on a company's debt can be paid from Earnings Before Interest and Tax (EBIT)
So What?
Another strong performance from McMillan Shakespeare; according to management the company has delivered a Compound Annual Growth Rate (CAGR) of 29% per annum since listing on the ASX in 2004. Shares are up 582% in the past 10 years.
The acquisition of Presidian Holdings looks to be a sound move as it broadens the company's business into parallel services like car insurance and financing, using McMillan's existing expertise and network of customers to sell more products.
Subsequent to the reporting date of June 30, McMillan also acquired United Financial Services ("UFS") which provides a similar range of lending and insurance products to Presidian Holdings.
Both businesses together are expected to deliver a wider customer base in 2016 that will be complemented by a re-branding of McMillan to better reflect the inclusion of Presidian and UFS.
Management declined to provide guidance for 2016, but stated earnings will increase as a result of the acquisitions, and that the business has met or exceeded targets in the first weeks of 2016.
Now What?
Despite such a strong result McMillan looks to trade on a reasonable Price to Earnings (P/E) ratio of 15, slightly above the ASX average but cheaper than a lot of slower-growing stocks. Gearing of 46% makes the company riskier than otherwise, but is kept in check by interest cover of 12.5 times.
With consistently strong returns on equity (ROE) and returns on capital employed of above 20% per annum, McMillan looks likely to remain a strong performer in the years ahead.
