Regulatory and Macro Headwinds Combined with Merger Doubts Lead to a 14% FVE Reduction for McMillan

Increasing uncertainty over no-moat McMillan Shakespeare’s proposed merger with Eclipx Group has cast doubt over its ability to achieve its forecast AUD 50 million annual EBITDA synergy benefits. It also faces macro and regulatory headwinds in its asset management, or AM, and retail financial services, or RFS, business--both in Australia and the United Kingdom. These factors have driven a reduction in our fair value estimate to AUD 14.20 per share from AUD 16.60. At our new fair value, the company has a fiscal 2019 P/E of 13 times and fully franked dividend yield of 5.1%.