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Post the heavy lifting, McMillan Shakespeare to flex earnings muscle
McMillan Shakespeare (ASX:MMS), a provider of salary packaging and novated leasing services and industry experts in fleet and asset management, is in a strong, albeit transitional, position.
With its “Simply Stronger” program nearing completion, a modernised funding model and multiple digital initiatives being launched across its business units, the company has laid important groundwork for future earnings resilience. But what does this mean for shareholders who have seen the share price retreat nine per cent over the past year, to close at $16.03 on Tuesday?
When the half-year results were released in February, they reflected a modest 2.4 per cent revenue increase from continuing operations and a dip in earnings due to non-recurring investment costs.
But the underlying message is long-term value creation, and, with the final stages of its transformation in sight, the financial year to June 30, 2025, could represent the inflection point where McMillan Shakespeare’s investment efforts begin to translate into sustained returns.
Certainly Robert De Luca (pictured), CEO and managing director, was upbeat when announcing the interim results, especially on the leasing and salary packaging fronts.
“Despite ongoing cost-of-living pressures, demand for novated leasing and salary packaging remains strong as Australians seek to maximise their disposable income.
“Recognising this opportunity, we successfully expanded our market presence through our innovative novated leasing brand, Oly. Its uptake was supported by increased customer interest, improved automotive supply and strategic partnerships with key manufacturers and dealerships.”
The headline figures from the first half painted a picture of disciplined execution. The $267.4 million in revenue, up from $261.1 million in the prior corresponding period, demonstrated stable top-line growth.
However, the standout was the company’s decision to absorb $11.9 million in investment to support digital platforms, automation and business development. These expenses, although compressing margins in the short term, are crucial enablers of productivity and scale.
The “Simply Stronger” program, scheduled for completion before June 30, has already delivered tangible outcomes. From invoice automation in Plan and Support Services (PSS) improving processing efficiency by 31 per cent to new customer apps reducing inbound queries in Group Remuneration Services (GRS), the benefits are materialising.
With capital expenditure for the initiative winding-down – from $12 million in the first half to less than $1 million in the second half – this shift signals earnings uplift potential as cost efficiencies begin to outweigh implementation drag.
GRS remains MMS’s engine room for shareholder value. It accounts for the largest portion of group earnings and is delivering robust novated lease growth, driven by faster order conversion, reduced delivery days and new client wins.
Sales increased 6.8 per cent year-on-year despite sectoral headwinds, and the introduction of Oly – a digital-first novated lease solution targeting SMEs – is expanding market reach. Oly alone accounted for three per cent of novated sales in its soft-launch phase.
While yields have normalised and some costs remain elevated from one-off implementation items, the fundamentals are promising. GRS continues to outperform the broader new car market, and the growing adoption of electric vehicles within novated sales (nearly half of new sales) aligns the division with long-term regulatory and environmental trends.
The expiration of FBT exemptions for plug-in hybrids may shift buying behaviour slightly, but the continuation of exemptions for battery EVs preserves momentum. Combined with government fleet transitions and consumer appetite for clean transport, GRS is strategically positioned for sustained relevance.
The successful $300 million securitisation in late 2024 diversified funding sources, reduced costs and extended maturity horizons. Receivables have grown substantially, and with headroom still available, Onboard Finance is poised to become a recurring income driver from financial 2026 onwards.
One of the clearest signals of MMS’s intent to protect shareholder value during this transitional period is its 100 per cent payout ratio for the interim dividend. The 71c payout reflects the company’s confidence in cash flow generation and its capacity to balance reinvestment with distributions.
With capex tapering and transformation costs largely absorbed, the second half of 2025 should see stronger free cash flow when the full-year results are announced – potentially setting up the conditions for a robust final dividend and optionality around capital returns or strategic acquisitions.
