galumay
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From quite a different perspective, i love it too! The divvy is in the bank (well, nearly)
& they are chugging along very nicely.
MMS - McMillan Shakespeare
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From quite a different perspective, i love it too! The divvy is in the bank (well, nearly)
& they are chugging along very nicely.
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I don't want to make you choke on your coffee, but is there any possibility that this years budget might contain another bitter pill for MMS. The gov't is certainly hard up and might throw around a few ideas for saving money.
MMS seems to be diversifying but still relies on their core business.
I'm just considering regulatory risk.
MMS seems to be diversifying but still relies on their core business.
I'm just considering regulatory risk.
galumay
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Even Abbott is not that stupid.....well OK he is, but I really cant see it, that would be an extordinary backflip even for this mob. You can never say never with regulatory risk, and every industry is at risk of it, just because you havent thought of it doesnt mean some lunatic minister hasnt dreamt it up!
I would say the probability of MMS experiencing negative outcomes from regulatory changes is very high, the more unknowable question is when. What matters for long term investing is buying at a price that adequately compensates for the risk. The bout of regulatory risk in 2008 gave rise to prices that have provided adequate return via dividends alone (more dividends then purchase price) by the time the next bout of regulatory awareness arose in 2013.
The best time to buy MMS for a long term investment is when everybody is aware of the regulatory risk. Pricing inevitable gets to the situation where you don't have to pay for the upside of regulatory risk not occurring.
MMS earnings and growth profile have returned to what they were - the price is still well down - people are obviously pricing in regulatory risk now, but how correctly?.
MMS could easily be a Multiple bagger (2+R) for a long term holder even with negative regulatory outcomes. The gap risk of an immediate change being something like 50%(0.5R)
Short term trading is more problematic - you also face the potential 50% immediate gap - but will never be in long enough to have an upside that compensates that risk. Short term trading MMS is playing gap roulette. With a short hold time frame your probabilities of not hitting the gap are high - but you should position size for the possibility of getting caught in the gap.
Everything has gap risk - Any company can announce fraud in the books for example. Some gap risk are just more obvious than others - its the unobvious that normally get you. If you always have short term trades on, your gap risk exposure becomes no less then the long term holder. Position sizing on your planned initial stop exposure rather then the unlikely but negative potential outcome for MMS would be very risky - but that's true of all companies that have gap risk and they all do. Fixed fractional position sizing is rubbish for gap risk control - all gap risk whether you are a short term or long term holder is only managed by diversifying your exposures.
Sorry Peter2, apart from the obvious line chart on close set up in MMS, the suggestion was also made as a basis to illustrate gap risk in trading, which I'm pleased to see you have picked up on. I've had my
on the topic now.
galumay
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I've had my
Great post, craft. I realise there is an advantage in knowing what the regulatory risk is a company faces, thats a big advantage with MMS. As pointed out every company has regulatory risk, generally you cant see it coming though.
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Nice rally in MMS price post budget leading to a break-out to new highs.
During the sideways price consolidation I notice that the volume indicators were very positive indicating accumulation rather than distribution. The TMF remained steady and just above its zero line, while the OBV rose.
During the sideways price consolidation I notice that the volume indicators were very positive indicating accumulation rather than distribution. The TMF remained steady and just above its zero line, while the OBV rose.
galumay
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Another stellar HY for MMS, Revenue up 34%, EBIDTA up 39% and NPAT up 25%.
Happy that I bought in at near the bottom after the Rudd announcement, even happier I re-rated it as investment grade rather than a contrarian speculative punt as I had initially rated my position in MMS!
Happy that I bought in at near the bottom after the Rudd announcement, even happier I re-rated it as investment grade rather than a contrarian speculative punt as I had initially rated my position in MMS!
Hi galumay
Report looks alright to me as well. Reports get treated like a triage arrangement by me at this time of year as far as in depth analysis goes. MMS looks pretty good, I’ll look at it more latter. But one thing I do want to check out is why the disparity in P/E between MMS and others in the field. You take the worst case scenario where regulatory risk wipes out all salary sacrificing/novating profit etc and MMS still has 13.5M profit in other segments and a P/E of <11. SIQ by contrast has no unexposed profit(?) and a P/E > 18. SIQ report later today, will explore it more then, maybe it’s a justifiable growth differential, but can’t help think the regulatory risk is being priced differently for MMS as opposed to the others, maybe because it was listed at the time of the Rudd Hiccup and the chart is a reminder.
galumay
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Ves & Craft, I suspect you are right craft, the market has a long memory and the pain of the Rudd intervention is not easily forgotten. While some risk remains, its a quantifiable risk that we are aware of - and as I think we have discussed previously, all companies have the potential to be struck by black swan legislative events- at least we know about it with MMS.
skc
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How did you come up with this PE multiple?
Current market cap is ~$950m. So if NPAT is $13.5m then PE is not anywhere near 11?
I am wondering about the same thing. One possible reason is that MMS is more easily available for the shorters, although the numbers suggests that there are only ~4% shares shorted. Shorts in the other names are close enough to zero.
As a side note... my wife recently started working for an organisation that allows her to salary sacrifice her income (with Remserve). So we spent a bit of time going through the papers and looking for what can be spent pre-tax. The overall experience left me with the impression that:
1. Such a crazy messy way for claiming expenses (probably not unlike any other parts of the tax system).
2. Really doesn't sound very fair to the other tax payers. Why should anyone be able to pay for a holiday with pre-tax money?
My stance is that, it's only a matter of when, not if, that the government will try to these in.
Which probably makes the PE multiples ascribed to SIQ, SGF and ECX all the more silly, and how smart and lucky for the private equity sellers to be able to sell these entities AFTER the MMS experience.
Does she work for a not for profit/gov't agency or private enterprise. I have had a look years ago at novated leases as a private company employee and the savings didn't seem to justify the hassle, but plenty of co-workers liked it as a packaged up way to finance and budget for a new car and running expenses.
I'm not sure about financing holidays but NFP & Gov't agencies certainly can sacrifice more wages for a wider variety of things - There's a lot of politics (and enterprise bargaining legalities) involved in taking this away, because its built into wage structure that attracts and retains employees. In a lot of ways its a federal gov't subsidy to federal agencies, state government agencies and Not for Profits. Certainly not efficient but not politically easy to change either I would suspect. Certainly would not provide any savings because all the dept heads, State Premiers & bleeding heart NFP's, not to mention the employees would be screaming for money to fill the blowout in the wages bill to retain staff.
Wether it gets changed or not it still begs the question why different companies with the same legislative exposure seem to have such different valuation metrics.
If we use today’s SIQ’s presentation proforma for acquisitions NPATA of 32.6M and today’s close of $4.40 SIQ is trading on a EV/NPATA of 14.7x
SIQ present proforma NPATA margin as 30% which is similar to MMS GRS division actual 31%. GRS achieved 15% NPAT organic growth. Can’t work out SIQ’s organic, it’s too mixed up with purchased growth but it looks like they may have achieved 13,800 organic packages on a 2014 base of 118,700 so that’s about 11-12% organic maybe. MMS had revenue of 184.6M, SIQ proforma 108.5M. SIQ finished with a run rate of 182,500 packages after acquisitions, MMS had 329,400.
MMS’s GRS appears to be nearly twice the size, transparently growing organically and slightly more profitable, possibly scale advantage. SIQ is growing by acquisition in the segment. Whilst MMS has made acquisitions to diversify it has not spent on acquisitions within GRS.
IF you value MMS’s GRS division at the same multiple as SIQ it would be worth 860Million.
MMS market cap is 953M and has net cash of 11.6M (SIQ net debt of 33m) excluding debt associated with the fleet funding which means the rest of MMS has a market cap of 81Million. For that 81M you get ~ 311Million of net assets in the Asset management & Retail Financial Services segments and approx 30Million full year NPAT in businesses largely unaffected by the legislative risk that SIQ and the GRS division face. MMS’s profitability is also being negatively impacted by mainly organic growth initiatives to diversify into the UK.
On a relative basis this quick assessment appears to confirm that different legislative risk is being applied for what in my mind is exactly the same risks or the market thinks MMS’s diversification is absolute crap. Personally I like it, an early presentation I seen on it described their diversification strategy as a virtual car dealership – all the revenue streams, none of the inventory costs. (comsec has APE at a P/E of 25)
SIQ present proforma NPATA margin as 30% which is similar to MMS GRS division actual 31%. GRS achieved 15% NPAT organic growth. Can’t work out SIQ’s organic, it’s too mixed up with purchased growth but it looks like they may have achieved 13,800 organic packages on a 2014 base of 118,700 so that’s about 11-12% organic maybe. MMS had revenue of 184.6M, SIQ proforma 108.5M. SIQ finished with a run rate of 182,500 packages after acquisitions, MMS had 329,400.
MMS’s GRS appears to be nearly twice the size, transparently growing organically and slightly more profitable, possibly scale advantage. SIQ is growing by acquisition in the segment. Whilst MMS has made acquisitions to diversify it has not spent on acquisitions within GRS.
IF you value MMS’s GRS division at the same multiple as SIQ it would be worth 860Million.
MMS market cap is 953M and has net cash of 11.6M (SIQ net debt of 33m) excluding debt associated with the fleet funding which means the rest of MMS has a market cap of 81Million. For that 81M you get ~ 311Million of net assets in the Asset management & Retail Financial Services segments and approx 30Million full year NPAT in businesses largely unaffected by the legislative risk that SIQ and the GRS division face. MMS’s profitability is also being negatively impacted by mainly organic growth initiatives to diversify into the UK.
On a relative basis this quick assessment appears to confirm that different legislative risk is being applied for what in my mind is exactly the same risks or the market thinks MMS’s diversification is absolute crap. Personally I like it, an early presentation I seen on it described their diversification strategy as a virtual car dealership – all the revenue streams, none of the inventory costs. (comsec has APE at a P/E of 25)
Cost of capital to the AM division would probably go up without the GSR division and you would lose the cross sell opportunities. A small profitability and growth impact - not a risk to its survival, certainly not how it is conservatively geared at the moment.
I tend to agree, but I think without the GSR division they'd have to gear it higher. It'd survive, but it becomes a riskier proposition.
I also agree with your assessment of the market pricing of MMS and SIQ at the moment. Considering it is far, far closer to vertical integration MMS probably shouldn't be trading at a significantly lower multiple than SIQ given the regulatory risks.
At the end of the day, if most of these companies lose significant earnings due to government reform, and MMS has enough earnings outside of GSR, it'll probably have the opportunity to clean up the scraps left behind by the smaller players.
Have you ever overlayed MMS' chart since June 2013 to the political polling numbers?
The political pain last time was too costly - and now all sides know it! There are Peter Costello comments around where he reminisced about considering changes and quickly concluded not to go near it with a barge poll.
Sensible economic policy (or probably not) change is now probably further away then it has ever been.
That's fairly comforting news for shareholders.
Thinking out aloud... Does that letter make the industry more attractive for long-term competition to consider entering? I wonder if any potential competitors have been deterred by legislative risk.
That's the odd thing with risk.... reduction in one area can often mean a counter-effect in another. 360 degree thinking.
Thinking out aloud... Does that letter make the industry more attractive for long-term competition to consider entering? I wonder if any potential competitors have been deterred by legislative risk.
That's the odd thing with risk.... reduction in one area can often mean a counter-effect in another. 360 degree thinking.
