McMillan Shakespeare shares tank as profit disappoints

The salary packaging group’s profit disappointed, as it announced a key contract stands at risk.

Mike Salisbury said the 2016 financial year had been a strong one for the group.

Shares in salary packaging and leasing services group McMillan Shakespeare have tanked as a record full-year profit result came in just shy of market expectations and its most important contract promised to deliver lower returns.

For the year to June 30, McMillan reported a 22.2 per cent jump in net profit to $82.5 million on the back of a 29.5 per cent lift in revenue to $504.7m.

The company’s adjusted profit of $87.2m was up 25 per cent, but came in short of market projections for a reading of $89.3m.

Investors were cautious in response to the minor miss, although news of a major contract being at risk was the key to a 10 per cent decline in its value.

“As planned, our largest client is currently evaluating tender proposals to provide novated leasing services,” the company said.

“If reappointed, MMS expects underlying profit may reduce by approximately $450,000 to $650,000 per month.”

Despite the cloud hanging over future earnings, chief executive Mike Salisbury said the 2016 financial year had been a strong one for the group as it assumed a market leading spot in the independent used vehicle financing sector in Australia.

“Our traditional salary packaging and novated leasing business proved again to be a reliable engine of growth as new business wins, participation growth and productivity improvements supported overall profitability,” he said.

“Pleasingly, it was also a year when this business’s exposure to regulatory risk was reduced as both major political parties recognised the value of our industry to the wider community and confirmed no change would be made to the FBT treatment of novated leases.”

McMillan Shakespeare declared a final dividend of 34c a share.

Its payout for the full year came in at 63c, up 11c from fiscal 2015.

At 12.45pm (AEST), McMillan Shakespeare traded down 9.9 per cent at $13.20.