Computershare Limited

CPU Details
 
5% Growth in Management Revenue in FY19: Computershare Limited (ASX: CPU) is involved in the operation of computer bureau and share registries. The market capitalisation of the company stood at ~$9.65 Bn as on 5^th February 2020. The company recently announced that it has signed a binding agreement for acquiring the business and assets of Corporate Creations Enterprises LLC for the purchase price amounting to $142.9 million. This acquisition will be financed from existing cash balances and undrawn debt facilities. This acquisition will extend the registered agent capabilities of the company. However, this transaction is subject to a regulatory filing and other customary closing conditions. Also, the acquisition is anticipated to close in Q1 CY20.

Following the acquisition of Corporate Creations Enterprises LLC, net debt/EBITDA ratio of CPU to remain within its target of between 1.75x to 2.25x. The company would be releasing its 1H FY20 results on 12^th February 2020. During FY19, the company reported Management EPS growth of more than 12% to 71.5 cents per share. The company experienced a rise of around 5% in management revenue, which amounted to US$2.4 billion.


Management Revenue by Business Stream (Source: Company Reports)

Underlying Profit Growth: The company is well-positioned for long-term growth and profitability. For FY20, the company is expecting Management EPS to witness a fall by around 5% on FY19 in constant currency terms. The company also anticipates underlying profit growth in all its major business lines in FY20.

Valuation Methodology: P/E based Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: Net margin of the company stood at 17.9% in FY19 as compared to the industry median of 14.6%. This reflects that the company has decent capabilities to convert its top-line into the bottom-line against the peer group. Return on equity of the company stood at 29.0% in FY19 versus the industry median of 15.0%, reflecting that the company has provided better returns to its shareholders as compared to the industry. We have valued the stock using P/E based relative valuation method and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). Hence, considering the company’s growth in key margins, returns to shareholders and other factors, we maintain a “Hold” rating on the stock at the current market price of $18.040, up 1.064% as on 05 February 2020. The upside in the stock is primarily due to the acquisition announcement of Corporate Creations Enterprises LLC.
 
 
CPU Daily Technical Chart (Source: Thomson Reuters)
 

Link Administration Holdings Limited

LNK Details

Acquisition of Pepper European Servicing: Link Administration Holdings Limited (ASX: LNK) is a technology-enabled administrator of financial ownership data. The market capitalisation of the company stood at ~$3.46 billion as on 5^th February 2020. The company via a release announced that it has entered a binding agreement for acquiring Pepper European Servicing (PES) from Pepper Group. The upfront consideration for the said acquisition stood at €165 million and up to a further €35 million in the event of meeting certain total Assets Under Management (AUM) thresholds and growth milestones.

The acquisition is anticipated to be double-digit accretive to the earnings of LNK, with a further 5%- 6% accretion expected from efficiency benefits over the medium term. Also, the acquisition would be financed from current cash and bank facilities. This is subject to relevant regulatory approvals and is anticipated to wrap up in 2H CY20. The business would be integrated with the BCM business of LNK. The following picture depicts an idea of financial performance for FY19:


Financial Metrics (Source: Company Reports)

Perspective for FY20:  The company is expecting underlying business drivers to remain strong and well placed to capitalise on future opportunities with respect to its fund administration business. For the same business, the company is planning to execute on UK pension market opportunity.

Stock Recommendation: Gross margin of the company stood at 92.2% in FY19 as compared to the industry median of 74.1%. Current ratio of the company stood at 1.38x in FY19, reflecting YoY growth of 13.5%. This indicates that the company has improved its position to meet its short-term obligations. The stock of LNK is trading at a price to book multiple of 1.6x as compared to the industry median (Industrials) of 2.1x on TTM basis. During the span of one month and three months, the stock of LNK has provided returns of 10.70% and 16.64%, respectively. Therefore, considering the company’s returns in the past months and decent liquidity position, we give a “Hold “recommendation on the stock at the current market price of $6.530, up 0.153% on 5^th February 2020. 

 
LNK Daily Technical Chart (Source: Thomson Reuters)

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