Thoughts on MMS and SIQ share price movements

Hi Lee,

These 2 salary packaging and novated leasing companies have certainly experienced tremendous volatility through recent sessions. McMillan Shakespeare (MMS) traded in an almost 30% trading range over the last 2-weeks. Similarly, Smart Group (SIQ) traded in a more than 20% trading range over the last 2-weeks rallying into its 1H23 result before falling away after its release.

The common issue is around the margins being achieved on leases attached to EVs. There was a broad assumption in the market that the higher value ‘s of EVs would help to drive an expansion in margins for the lease providers, however SIQ noted that the yield on EV leasing is expected to be inline with it’s non-EV leases. While the values are higher which drives higher finance commissions, more competitive rates are needed which hurts the margin while there are less aftermarket add-ons put on these vehicles, which also hurts.

Current price action is just a recalibration of the markets expectation around EV driven margin growth. As SIQ stated in their results (1H), 30% of all new novated quotes are for EVs which clearly shows the direction the market is moving towards, and both MMS and SIQ are well positioned here to capture this trend, assisted by favourable tax incentives, however given both have run hard into their respective results with the market prepared to pay a higher multiple than they have in the past, predicated on higher margins, we think in the case of SIQ a  P/E of 17x v 14x historically is too high, however, a re-rate down to a more normal multiple would have us interested. While it may be a long shot, SIQ on 14x would be trading at ~$7, as a guide, while MMS would need to trade nearer $15 to be on it’s historical PE.

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McMillan Shakespeare Ltd (MMS)

LAST UPDATED 31/08/2023 14:43

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McMillan Shakespeare Ltd (MMS)

LAST UPDATED 31/08/2023 14:43