Simply Stronger And Oly Initiatives Poised To Drive Future Success

Key Takeaways

• Strategic growth initiatives, including Onboard Finance expansion and Oly brand introduction, are set to drive revenue growth and open new markets.
  
• Investments in digital platforms and productivity enhancements through the Simply Stronger program are expected to boost net margins and operational efficiency.
  
• High operating expenses and strategic investments could strain margins, with competition, regulatory changes, and execution risks posing challenges for revenue and profitability growth.

Catalysts

Provides salary packaging, novated leasing, disability plan management, support co-ordination, asset management, and related financial products and services in Australia and New Zealand.

• The completion and continued implementation of the Simply Stronger program is expected to enhance digital experiences and boost technology-enabled productivity, which should lead to increased revenues and improved net margins.
  
• The scaling of Onboard Finance, including strategic growth in receivables and a securitized funding program, promises to contribute incremental earnings post-FY '25 normalization, thus improving future earnings.
  
• The introduction and anticipated growth of the Oly brand are opening new markets for novated leases, expected to drive revenue growth through new client wins and expanded market reach.
  
• Investments in digital platforms, such as the MyMaxxia app and invoice automation, are expected to improve customer self-service capabilities and operational efficiency, potentially leading to better net margins.
  
• Continuation of growth strategies and partnerships (e.g., with OEMs and SMEs) in Group Remuneration Services could drive sustained novated lease volume growth, supporting higher revenue and earnings in future periods.

McMillan Shakespeare Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming McMillan Shakespeare's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.9% today to 19.2% in 3 years time.
• Analysts expect earnings to reach A$113.0 million (and earnings per share of A$1.62) by about March 2028, up from A$91.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, up from 10.0x today. This future PE is lower than the current PE for the AU Professional Services industry at 16.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.71%, as per the Simply Wall St company report.

McMillan Shakespeare Future Earnings Per Share Growth

Risks

• The persistence of higher operating expenses due to strategic investments and nonrecurring costs could strain net margins, negatively impacting profitability in the short term.
  
• The expiry of the FBT exemption for plug-in hybrids could influence demand dynamics, potentially affecting revenues from novated lease sales.
  
• Increasing competition, especially in new segments like those targeted by Oly, which can compress margins and reduce market share, impacting revenue and profit growth.
  
• Dependency on ongoing digital transformation programs (Simply Stronger) to deliver future efficiencies and growth, introducing execution risk that could affect operational productivity and financial outcomes if not managed effectively.
  
• Exposure to fluctuations in vehicle market conditions, such as the moderation of used vehicle prices and changes in vehicle financing costs, which can impact the yields and returns on their Asset Management Services, affecting overall earnings.

Valuation

• The analysts have a consensus price target of A$18.106 for McMillan Shakespeare based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$20.0, and the most bearish reporting a price target of just A$16.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$590.1 million, earnings will come to A$113.0 million, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 6.7%.
• Given the current share price of A$13.2, the analyst price target of A$18.11 is 27.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.