Labor is out, but McMillan Shakespeare is back in

Fears of potential earnings loss fade away with new government.

a woman

When former Prime Minister Kevin Rudd returned to power in July this year, it was announced that the way benefits concerning vehicle related deductions within the Fringe Benefits Tax would be calculated differently.

This may have been seen as a way to increase tax revenues, and possibly posture itself for the upcoming election, but fixing one problem caused another. This proposal will affect novated leases of company and government vehicles for employees, who may take a cut in take-home pay in return for use of a company car.

Just when the automotive and manufacturing industry are going down with lay-offs and even large companies like Ford (NYSE: F) are planning to cut auto manufacturing in Australia altogether, this was salt in the wound for companies like McMillan Shakespeare (ASX: MMS), which saw share price fall from $18 to $8 within two weeks.

The legislative changes haven’t been put into place, and with the Liberal victory in the Federal election the chance of the proposal seeing the light of day is nil, yet the company’s future earnings are adjusted down in the eyes of investors.

Already, dips in auto sales have been seen since July when the ongoing trend before than was up. About 98,000 cars were forecast to be sold during the 12-month period up to August, yet the actual figure was about 93,000, making a shortfall of close to 4,600 cars, according to the Federal Chamber of Automotive Industries (FCAI).

Manufacturers Ford, Toyota (NYSE: TM) and Holden all saw drops in Australian domestic sales in August compared with August 2012 numbers. FCAI chief executive Tony Weber in July said, “I want to know if the Government truly understands the consequences of this decision, and why the industry was not consulted on such a significant change.”

Now, it looks like everyone can get back to business. The suggested lay-off of workers that McMillan Shakespeare was considering now can be forgotten. Already, the company’s share price has rebounded to $13.40, up 67.5% since July.

Foolish takeaway

As was reported here previously (“Value and growth investors should look at McMillan Shakespeare now“), investors have to look past the headlines, and see what the real consequences are if something occurs or not. When fearful news drives prices and markets down, you should be out there looking for the short-term discounts on good companies.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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