McMillan Shakespeare permanently wounded

Is that a dagger I see before me?

Car leasing outfit McMillan Shakespeare may well have become a stockmarket vehicle for an election punt, but the recent furore over fringe benefits tax may have exposed a fundamental flaw in its business model from which it is unlikely to ever fully recover, regardless of who wins the upcoming federal election.

Any operation that relies on tax rulings or arrangements for earnings is vulnerable to a change in that ruling. It is a phenomenon that has wreaked havoc on a range of managed investment schemes over the years.

A well run company that was something of a darling among value investors, its stock price had delivered the goods, climbing this year from $13 to $18 before it was suspended within a few hours of the Federal Government’s plan to save on FBT to help fill the revenue shortfall left by scrapping the carbon tax.

When it resumed trading yesterday it fell to as low as $6.75 on massive turnover as investors rushed for the exits before closing 43% lower at $8.80. Analysts are now urging investors to sell, citing a target price of $6.

The ASX has refused the company’s application for an indefinite suspension, effectively transforming McMillan Shakespeare as an investment play on the election result (see John Abernethy's McMillan Shakespeare: tragedy or farce?).

But it is unlikely McMillan Shakespeare will resume its previous level, at least in the short to medium term, even with a change of government.

Indefatigable shadow treasurer Joe Hockey has been a regular in car yards during the past week lambasting the tax change decision. And while the Opposition has vowed to can the change, the genie is now out of the bottle.

A future government of whatever persuasion looking to plug a funding shortfall will immediately look at tightening fringe benefits tax. That $18 peak will become a distant memory.