Markets: Moving on McMillan

After a 43 per cent plunge in a stock does one gird ones loins and buy? Ian Munro, an analyst at CCZ Statton Equities in Sydney, thinks so.

McMillan Shakespeare, which provides motor vehicle leasing, suffered its biggest ever one day fall yesterday when it resumed trading after a six day trading halt.

Shares in the Melbourne-based company slumped $6.56 to $8.80 yesterday after the company said the proposed government change to the treatment of the fringe benefits tax on motor vehicles ”will have a material adverse impact on future earnings”.

CCZ analyst Munro says McMillan Shakespeare shares will now rise.

“We are expecting the stock to retrace towards $9.56 in coming sessions as the election date firms up, mindful that the odds of a Coalition victory have also firmed during the past week,” he says. 

“The stock is likely to retrace to $11 to $12 a share, once comfort levels rise around the Coalition commitment that the proposed fringe benefits tax changes will not be pursued, post a potential change of government,” Munro adds.

McMillan Shakespeare stock was an 18 times price earnings company, at $15.36, on July 16 when trading in its shares were halted at the request of the company, says the CCZ analyst.

Now the stock is trading at 12 times. That, says Munro, is “serious punishment” as the company’s salary packaging division has about a 50 per cent market share and is growing. Its fleet business is “on track for strong EBITDA growth, in spite of the regulatory risk on novated leasing”, he says.

At 1015 AEST McMillian Shakespeare shares had jumped 80 cents, or 9.1 per cent, to $9.60.