McMillan Shakeseare (ASX:MMS) was one of the inaugural stocks picked for the NAPS Australia and New Zealand portfolio at the start of the year. At the time it had a StockRank of 98. Since then it has been the third best performing stock in the portfolio with a return, including grossed up dividends, of 39.8%. If the NAPS portfolio was to be prepared today, it would still make the grade. It has a StockRank of 96 and its prospects remain bright.
McMillan Shakespeare operate across three segments:
Group Remuneration Services
Asset Management Services
Plan and Support Services
Asset Management Services is the biggest contributor to revenue at about 58%, but not the biggest contributor to profits as it operates on tight margins. This business is about providing vehicle fleet management as well as an asset finance aggregator. The latter involves providing access to a panel of lenders for finance brokers.
Group Remuneration Services contributes about 36% of revenue. This business involves salary packaging and novated vehicle leasing.
The vehicle leasing industry has witnessed some unusual effects in recent times. Firstly, new car sales have started to pick up over the last 12 months following a steady downtrend for the past few years. This was exacerbated by reduced production in the early part of the pandemic.
Source: McMillan Shakespeare Limited (MMS) Interim Results Investor Presentation, 22/2/2023
The lack of new vehicle supply has led to used vehicle prices reaching record levels. The drop in new car production at the start of the pandemic has now created a shortage of three year old vehicles adding further upward pressure to used car values.Used vehicles prices remain very elevated although they have come down from the peak as shown in the used car sales price chart below which compares how used car prices have tracked since the start of the pandemic and also contrasts it with the experience of the GFC.
Source: McMillan Shakespeare Limited (MMS) Interim Results Investor Presentation, 22/2/2023
And then there is the electric vehicle (EV) effect. Recent changes to fringe benefits tax for electric and low emission vehicles have made it far more attractive to lease these types of cars. As the chart below shows they are rapidly growing in…
