MMS - McMillan Shakespeare

[galumay]

Its sort of the end of a story for me, bought in just after the Rudd announcement and have seen a very nice recovery in the intervening period, topped off with the jump today. One of the best performers in my portfolio.

 

[piggybank]

A nice rise of 14% since last Fridays close.

The weekly chart starts from the carnage in July 2013.

​

 

[Ves]

Probably. I know the story that underlies my valuation of MMS has declining profitability for the remuneration services business for that exact reason.

I've been thinking about this more and more since the result.

The note on page 24 of the 2016 results presentation (I wish they'd explained it in more detail) has been in the back of my mind.

I'm caught in two minds - competition has really ramped up and they're gunning for that contract and MMS' hand has been forced to significantly reduce their margin or lose it.

It's bad because it's most likely a sign of where we are going but on the other hand it's also good because MMS has the economic muscle to carry such a drop and still be competitive enough to win the contract (assume this happens and I think it will).

I probably had them milking the RS segment for a bit longer because this happened, and gaining a sustainable earnings stream outside of this in the mean time with the excess cash flow. Has happened, but ideally would like more of it.

 

[craft]

I'm caught in two minds - competition has really ramped up and they're gunning for that contract and MMS' hand has been forced to significantly reduce their margin or lose it.

The legislative risk diminishing has made the industry more attractive so the competition increases just as you say. I'm not sure who the price leaders are? Are MMS responding as you suggest or are they leading the price down now after not being so sharp when there was more present legislative uncertainty.

Looking at the size and diversification MMS should have the lowest cost base, the best alternative revenues and biggest cross sell opportunities. But the market isn't pricing it relatively like that. (at the moment)

I think there is enough buffer in MMS price to cover declining profitability from Remuneration services. Not so sure about some of the others.

 

[Klogg]

The legislative risk diminishing has made the industry more attractive so the competition increases just as you say. I'm not sure who the price leaders are? Are MMS responding as you suggest or are they leading the price down now after not being so sharp when there was more present legislative uncertainty.

The legislative risk to GRS has certainly died down, but there are potential regulatory changes in the RFS unit.

ASIC put out this report:
https://www.asic.gov.au/about-asic/...sale-of-add-on-insurance-through-car-dealers/

Interesting stats in there, and the following is just as interesting:

Today's report follows ASIC's release of two reports in February this year about the sale of add-on life insurance by car dealers. ASIC stressed the need for insurers to address the high costs, poor value and poor claim outcomes of life insurance products sold this way.

ASIC is putting general insurers on notice that they need to improve consumer outcomes by making substantial changes to the pricing, design and sale of add-on insurance products or face additional regulatory action. The key commitments we are seeking from insurers are:

A significant reduction in the amount of commissions paid to anyone who sells an add-on insurance product through car dealers
A significant improvement in the value offered by these products, through substantial reductions in price and better product design and cover
A move away from single upfront premiums that are financed through the loan contract, given the adverse financial impact this has on consumers
Providing refunds to consumers who have been sold policies in circumstances that were unfair, such as where a policy has been sold to a consumer who was never eligible to claim under the policy
Insurers have notified ASIC that they intend to implement a 20 per cent cap on commissions, which is a positive step. Insurers in this market will be also providing ASIC with data on prices, premiums and claims on a regular basis so that we can monitor the impact of changes on consumers.

Not quite sure how that plays into the RFS segment yet, but if there's a 20% cap on commissions, I suspect brokers would take the majority of that impact - just not sure of the split yet. TBH, I'm not even sure of the current commission structure, something to look at.

 

[peter2]

Since the last post MMS has gone from $10 to $18 and is now in a corrective pattern.

Normally this is a safe trading stock with low volatility but that isn't so at the moment. There's been some huge daily swings in MMS. I assume these are due to thin MD and should be avoided until the volatility settles.

 

[Faramir]

MMS gets more volatile near election time until both parties releases Fringe Benefits Tax statements. That means, we won't repeat the Kevin Rudd (& co) statement of 2013, where that halved MMS. I picked a very small amount in Apr 2014. I haven't done any averaging up. Maybe there will be an opportunity soon???? Maybe wait until the next election is called???? MMS was my second stock that I purchased. Got it under $10. I felt very nervous back then. Now I am regretting not buying more.

 

[Faramir]

I Actually prefer smart group over this it listed today and dropped 9% so I pick up some...seem reasonable price with risk and reward after the price drop.

Their earning is fairly diversified and not all ties to car leasing, their revenue only drop 4% with the FBT
debacle ... 4 times smaller and has room to grow

but both are good business with regulation uncertainty.

2 Jul 2014, ROE mentioned Smart Group. It has definitely performed better. Back in 2014, my naive thinking told me not another company similar to MMS because I was doubling my risk of another Government statement regarding FBT. Also seeing that MMS were explaining in UK and trying to diversify back then gave me more comfort. Wished I got both of them. Back then, I think I purchased NVT instead?? What a dumb decision!

In truth, I will admit that I have not monitored MMS as closely as I should. Maybe that is a good thing as I have ignored much noise. MMS just ticks along for me. I should accumulate. I hope @peter2 is right as he indicates that volatility should increase.

I missed @ROE, I hope he is well.

 

[Faramir]

Trading Halt

Going to merge with Eclipx.
https://www.asx.com.au/asxpdf/20181108/pdf/4403p16vyjrwc5.pdf

I do not know what to do nor what to think.
I held MMS since April 2014. Solid performer. Wished I had more time to study this proposal better.

• Scrip and cash: 0.1414 MMS shares and $0.46 cash offered for each Eclipx share held, implying a total value of $2.85 per Eclipx share based on MMS’ last closing price of $16.90 on Wednesday, 7 November 2018
• The consideration represents a 33.2% premium to Eclipx’s undisturbed price of $2.14 on Friday, 17 August 2018

 

[tinhat]

Going by the stock market reaction, its a good deal for Eclipx!

 

[galumay]

@Faramir I sold out of MMS in late 2017 for about $14.60, I had bought them at under $9 in 2013. I figured they had run past my calculated range of IV and there were better homes for my capital elsewhere. I dont thnk you have made a mistake in continuing to hold though, its still a solid business.

As far as the merger goes, it doesnt look too bad, I dont like the debt MMS will inherit, but then I have a particular dislike of debt in the current climate, it also seems a pretty generous valuation of Eclipx and their shareholders would certainly be pleased.

I guess the question for you is whether you have a compelling alternative investment for the capital or not?!

 

[Faramir]

Hi @galumay
No, other than cash, I have no alternative to MMS. If I found an alternative, I use existing cash first before selling MMS. I still need to study this merger. As I said - I haven’t made up my mind about MMS.

McMillan Shakespeare and Eclipx will combined to be bigger than SmartGroup.

 

[luutzu]

Hi @galumay
No, other than cash, I have no alternative to MMS. If I found an alternative, I use existing cash first before selling MMS. I still need to study this merger. As I said - I haven’t made up my mind about MMS.

McMillan Shakespeare and Eclipx will combined to be bigger than SmartGroup.

Have your checked out the Reject Shop?

Pretty interesting.

 

[peter2]

The chart below is part of a research project and should not be considered a recommendation to buy this stock. If you want to read more about the project log in to read the P2 Weekly Portfolio thread.

Setup: Near BO-NH in new trend Grade B due to low daily traded volume
Buy limit: 14.65, iSL 13.30, initial target 17.00

 

[peter2]

Another reversal opportunity in MMS, but first let me explain the last one. I missed out on the previous opportunity as the market opened higher than my buy limit order (14.65). The market came down to 14.68 but no lower so I missed this trade. I held my disappointment for 5 weeks as price went higher. Price tanked before (?) and after the half yearly report. My disappointment turned to relief as I missed out on another losing trade during the reporting period.

Another reversal opportunity in MMS. Has to be risky after the 1/2 yearly selloff and the ongoing negotiations with the Eclipx merger. Good enough for the 40P portfolio but not for me.

 

[Faramir]

Thank you for pulling out of Eclipx Group merger.

https://www.asx.com.au/asxpdf/20190320/pdf/443mvydlhybn3z.pdf

I feel sorry for Eclipx shareholders. I feel relief for MMS.

 

[Ann]

Looking at the weekly Twiggs Money Flow indicator is appears as though the money may be departing from this stock.

 

[peter2]

Getting a position in MMS is proving to be difficult. In my first attempt price jumped over my buy limit and I miss out on a losing trade. My second attempt has also been thwarted by disappointing price movement.

2nd setup: Bullish weekly bar (key reversal) with high volume. Things were looking positive as the merger with Eclipx looks likely to be aborted. Price opened higher after the news but ended down on the day. I raised my exit trigger to remove some of the initial risk while allowing price to test the BO level (13.00). However price closed below the exit trigger yesterday and I've sold this morning and realised a small loss (-0.5R). I'll re-enter if price closes above 13.00 again provided price doesn't close below 11.50. This stock has been as slippery an an eel.

Clearly this price corrective pattern is not complete and is now below the 61.8% fib level of the prior impulsive move up. I would suggest that the MMS mgt team have a bit of work to do to get this business back on track.

 

[Miner]

Getting a position in MMS is proving to be difficult. In my first attempt price jumped over my buy limit and I miss out on a losing trade. My second attempt has also been thwarted by disappointing price movement.

2nd setup: Bullish weekly bar (key reversal) with high volume. Things were looking positive as the merger with Eclipx looks likely to be aborted. Price opened higher after the news but ended down on the day. I raised my exit trigger to remove some of the initial risk while allowing price to test the BO level (13.00). However price closed below the exit trigger yesterday and I've sold this morning and realised a small loss (-0.5R). I'll re-enter if price closes above 13.00 again provided price doesn't close below 11.50. This stock has been as slippery an an eel.

Clearly this price corrective pattern is not complete and is now below the 61.8% fib level of the prior impulsive move up. I would suggest that the MMS mgt team have a bit of work to do to get this business back on track.

View attachment 93319

Thanks Pete for your share.
Some wishful thoughts which probably applicable to MMS, AHG, SIQ and others.

1. Market for car market is generally sluggish.
2. FBT is cost prohibitive for salary packaging.
3. Flogging by additional taxes by Canberra on income limits of $250 K is concernably higher and even car packaging is no more attractive in FY 2018 and 2019.
4. Generally contractors do not bother for salary packaging or novated lease.
5. Me too products and providers are making MMS and similar good service providers no more attractive due to cost ground. In fact in my Rio days, I was happy to accommodate MMS lease (2007) but once came out of Rio, I do not have the urge to use MMS or any novated lease for that matter.
6. Companies like Toyota giving 0% interest for 4 years car purchase (my wife bought only last year) than availing 8% interest flogged by companies like MMS is no more attractive. Just alone expense to be tax effective is no more attractive with kilometer leverage does not apply for new comers.

So cutting down the bottom line I am seeing all companies like MMS are losing their hay days. MMS being a sophisticated and upmarket one, going to suffer more.
DNH - debating to buy at dip price but then withdrawing the temptation.
Cheers

 

[Faramir]

MMS up 17.8% today. Good turn around from last Feb half-yearly report.

https://www.asx.com.au/asxpdf/20190821/pdf/447npk0ct4wf8l.pdf
Profit $63.672 million, up 26.6%

https://www.asx.com.au/asxpdf/20190821/pdf/447nqhzhn7tp66.pdf
Let's buy back 82.2 million shares

Very tough environment. Especially with their venture in UK.

Keeping funds in MMS. Dividends are better than a term deposit. If I am desperate for money, I will find another stock instead. I wonder why I never topped up???? Maybe I want to keep my position small or I had limited funds OR I was looking at other opportunities (which never eventuate).