McMillan Shakespeare Reports a Record Result but In-Line with Forecasts, Fair Value Maintained

The 23% increase in McMillan Shakespeare's fiscal 2015 net profit after tax, or NPAT, to AUD 67.5 million was in line with our AUD 67 million forecast. We maintain our fair value estimate at AUD 13 per share and the shares are slightly overvalued. We believe the market is attracted to McMillan Shakespeare's fully franked dividend yield and record of reliable growth, particularly in the recent uncertain climate. However, we take a more cautious approach to reflect legislative risk associated with the salary packaging business, which underpins our high fair value uncertainty rating. McMillan Shakespeare continues to lack an economic moat, despite returns on invested capital exceeding the weighted-average cost of capital, as legislative risk means the sustainability of investment returns remains uncertain.