McMillan Shakespeare administers salary packaging and novated leasing for employers — turning pre-tax salary into cars, expenses, and benefits — while funding those leases through its own in-house lending operation. At A$16.62 versus a fair value of A$22.41, the stock is undervalued by 35%. The key question is whether the federal government removes the electric vehicle fringe benefits tax exemption in mid-2027 — the single event the market is pricing far more harshly than the evidence warrants.

MMS fits value and income investors best. The 35% discount to fair value is concentrated in a single policy risk that we assess at 25% probability of adverse outcome — meaningfully below the 35–40% the market implies. A fully franked 7.2% yield provides income while the thesis plays out, and the FY27 earnings catalyst arrives independent of any political decision.

McMillan Shakespeare helps employers package their workers' salaries into tax-effective benefits — primarily novated car leases — and earns administration fees for doing so. What separates it from competitors is that it funds those leases itself through an in-house warehouse facility, capturing the lending spread rather than passing it to a bank. That structural advantage underpins margins roughly double those of fleet-only peers.

The first half of FY26 confirmed the business is growing. Revenue rose to $297 million and underlying UNPATA reached $50 million, tracking toward an estimated $104 million for the full year. The Olympus SME platform grew its client base by 233% from a small base, the in-house loan book reached $539 million, and digital self-service hit 83% — reducing cost per customer even as volumes expanded.

The investment case is straightforward. A federal government review of the electric vehicle fringe benefits tax exemption has depressed the multiple to 11x earnings — five turns below the sector median. We assess the removal probability at 25%, and even our bear case scenario of A$17.20 sits above the current price. A mechanical earnings uplift from expiring amortisation charges arrives in FY27 regardless of the policy outcome.

At A$16.62 versus fair value of A$22.41, the stock is undervalued by 35%.

What happened?

The first half of FY26 was a clean beat across the two segments that matter most. Government and Corporate salary packaging grew revenue 16% to $168 million, driven by EV novated lease demand and the expanding Olympus SME client base. The in-house lending operation added $119 million in new receivables to reach $539 million, contributing meaningfully to the group's lending spread income. The drag came from Plan and Support Services, where NDIS fee reforms cut EBITDA by 21% — though this segment contributes only 8% of group earnings.

What's next?

FY27 is the inflection year. Amortisation charges from the $29 million Simply Stronger productivity programme are set to roll off, adding an estimated $6–7 million after tax to earnings without any volume growth required. That alone is expected to lift UNPATA by 16% year-on-year.

Three events will shape the next 18 months. The NDIS annual pricing review in July 2026 will determine whether plan management fees stabilise or compress further. Full-year FY26 results in August 2026 will provide the first clean read on whether the $104 million UNPATA estimate is on track. The defining event is the federal government's BEV FBT review, expected mid-2027 — the outcome will either confirm or challenge the current discount to fair value.

Management has guided for a stronger second half of FY26, citing customer growth, rising loan receivables, and operational efficiencies. That guidance is consistent with a business that has met or exceeded targets in seven of the past eight reporting periods.

What could go wrong?

The entire thesis rests on a political decision. The federal government is reviewing the electric vehicle fringe benefits tax exemption, with an outcome expected mid-2027. Electric vehicles now represent 45% of new novated lease sales at MMS. Removal of the exemption would reduce novated EV demand sharply, cutting an estimated $4.50 per share from fair value.

We assess removal probability at 25% — lower than the 35–40% the current share price implies. The reasoning: 55% of MMS's novated book is already non-EV, the exemption costs the government only around $200 million annually in foregone revenue, and industry lobbying has secured bipartisan support in prior reviews. Crucially, even our bear case of A$17.20 — which prices in substantial volume deterioration — sits above today's price. The market appears to be pricing a worse-than-bear outcome, which we consider unlikely given what the evidence shows.