MAF307 EQUITIES AND INVESTMENT ANALYSIS - Essay Example

The strategic analysis of the group indicates that with continued development of new initiatives and business products, the group is likely to expand its client base by entering new markets. The company’s salary packing business continues to provide an annuity stream of income that further allows cross-selling of company’s other products such as leasing services. The company has a very strong balance sheet and cash flow position that gives it opportunity to choose inorganic expansion route.

The company’s revenues from core activities experienced 12.6% to $161.50 million at the end of December 2012, with net profits rising over 19.3%. The company announced the gain in gross revenue and profit for the year June 2013 but a proposal from the Labour government shook company’s future earnings capacity causing the company’s share price to plunge by over 55% in the middle of July 2013. Background of Share Price Crash McMillan Shakespeare’s Finance group share price almost halved since the government flagged changes to current laws of fringe benefit tax (FBT) that has created uncertainty in the markets.

The company’s trading was suspended for a week and when it resumed trading the share prices crashed by over 48% to $7.99 wiping away almost $549 m of shareholders’ wealth from the markets (Australian Associated Press, 2013). Due to this reason the company’s management requested for an extension to halt trading which is viewed by many analyst as a desperate move by the management to avoid such huge amount of losses and save shareholders’ wealth from volatile and uncertain markets. The Australian Securities and Investment Commission have however rejected the company’s plea of halting trading.

(Source: ASX, 2013) The company has criticised the government’s recent decision to tightening FBT guidelines especially on salary package and car leasing for the share price crash and uncertainty in markets. The panic among the investors was evident since the proposed changes to FBT guidelines tighten fringe benefit taxes on salary packaging and car leasing. The investors in the market expected the revenues of the company to be adversely affected from the government’s decision since the company’s primary source of revenues is generated from car leasing and salary packages.

This negative outlook on the company’ future earning capacity from the tightening of FBT created panic in the broader markets that led to overselling of company’s stocks in Australian Stock Exchange. Thus, it can be said from the above discussion that a chain of events starting from the government’s decision to tighten FBT guidelines, the same decision to adversely affect profitability of the company, negative sentiments among the investors in the market regarding company’s future, and huge sell of the Finance Group’s MMS stocks after a week’s inactive trading, ultimately caused the company’s share prices to plummet by over 55% in the mid of July 2013.

Reasons behind Dramatic Price Change The company under observation derives almost 50% of its revenues from two major segments namely Asset Management and Group Remuneration Services. But from the analysis of financial statements of the company it is apparent that over 70% of its total earnings are generated from the revenues of group remuneration, which is almost three