One of the worst performers on the S&P/ASX 200 Index (ASX: XJO) yesterday was McMillan Shakespeare Limited (ASX: MMS). The McMillan share price closed 6.14% lower at $8.72 on Wednesday, after earlier falling as low a $8.25 per share. This came after the salary packaging, novated leasing, and fleet management company released its FY20 results.
FY20 performance
McMillan reported for the full year ending 30 June, a 10.1% decline in revenue to $494 million and a massive 25.1% fall in earnings before interest, tax and amortisation (EBITA) to $99.5 million.
Underlying net profit after tax and acquisition amortisation (UNPATA) dropped 22.2% to $69 million. Underlying earnings per share (EPS) of 87.4 cents was down 18.5%. The company has declared no final dividend to be paid as it takes a cautious approach due to the uncertainty of COVID-19. McMillan plans to resume dividends in FY21.
The FY20 results appear to have spooked investors as the McMillan share price has been heavily sold off.
COVID-19 impact
McMillan advised that the coronavirus pandemic caused a sharp and severe hit to Q4 earnings. The company renegotiated contract extensions for 21 customers and granted interest only repayments and payment deferrals for a further 62 customers.
The uncertainty surrounding the pandemic is expected to result in further restrictions and, subsequently, associated impacts on the company's near-term future performance.
Proactive measures have been taken to reduce costs and extend McMillan's senior debt maturity to see the company through the current climate. McMillan recorded its net cash position of $66.7 million excluding fleet funded debt.
FY21 outlook
McMillan advised there have been some encouraging early indications for Q1 FY21 as activity levels start to improve. However, this of course is reliant on the Australian and the United Kingdom economies returning back to normal sooner rather than later.
The company's Group Remuneration Services segment, Plan Partners, was not affected by COVID-19 and is well positioned for customer and earnings growth in FY21. $669 million of client funds were under administration in FY20.
McMillan's rapid digital program expansion has been gaining traction as a way to service customers remotely. The program's digital roadmap is expected to enhance overall customer experience and support growth opportunities.
Should you invest in today's McMillan share price?
Whilst these results are disappointing, I believe they should have been expected due to the impact the pandemic has had on McMillan's businesses. I am also confident the company will bounce back for FY21. Furthermore, McMillan has initiated cost-saving measures to help see it through the challenging conditions.
Particularly after yesterday's falls, I believe the McMillan share price could be a good option for investors with a long-term horizon.
