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McMillan Shakespeare Limited’s profit has fallen by 12%: Should you buy?

The last month has been eventful for investors in McMillan Shakespeare Limited (ASX: MMS), with the salary packaging and financing company seeing its share price rise by a whopping 25%, while the ASX is up just 0.5% during the same time period. However, results released last week showed that the company’s net profit fell by 12%, although this was mainly due to temporary issues caused by the previous government’s planned changes to fringe benefit taxation rules. So, looking ahead, is McMillan Shakespeare worth adding to your portfolio?

Future potential

It’s clear that the future could be a whole lot brighter for the company’s bottom line than was the case last year. Indeed, McMillan Shakespeare is forecast to increase net profit at an annualised rate of 19.1% over the next two years. This is considerably higher than the ASX’s growth rate and shows that, without one-off items, the company can deliver impressive levels of growth.

A low valuation?

Despite its recent share price rise, McMillan Shakespeare still offers top notch value for money. For instance, it trades on a P/E of just 14.8, which is 8.6% lower than the ASX’s P/E of 16.2. This shows that there is scope for an upward rating adjustment, which would clearly be great news for shareholders in the company. Furthermore, McMillan Shakespeare’s PEG ratio screams value. A relatively low P/E and high growth rate combine to generate a PEG of 0.77, which is well below the ASX’s PEG of 1.94.

Income prospects

If great value and strong growth prospects aren’t enough, McMillan Shakespeare also comes with a fat, fully franked grossed-up yield of 4.6%. Furthermore, as a result of its exciting growth potential, McMillan Shakespeare is all set to increase dividends per share at an annualised rate of 9.2% over the next two years. Being covered 1.4 times by net profit, they also seem to be highly sustainable, too.

Looking ahead

So, despite a fall in profit for full year 2014, McMillan Shakespeare could be on the cusp of a ‘purple patch’. Certainly, the share price is much higher now than just one month ago, but shares in the company still seem to offer great value, super growth prospects and a top notch, growing yield. As such, McMillan Shakespeare could prove to be a winning investment moving forward.

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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned

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