Stocks’ Details

Computershare Limited

FY20 Financial Update: Computershare Limited (ASX: CPU) is engaged in the business of issuer services (register maintenance, corporate actions, etc.), mortgage services, business services (bankruptcy, class actions, etc.), technology services, to name a few. The market capitalisation of the company as on 04 January 2020, stood at ~$7.89 billion. During FY20, the company reported revenues of US$2.3 billion. There was a decrease in the margin income by US$45.1 million to US$201 million, due to interest rate cuts owing to COVID-19 volatility. Revenues from issuer services decreased during the period. However, this was partly offset by growth in new income streams. Operating costs were down by 1.1% to US$1,662.1 million in FY20, compared to pcp.

FY20 Performance (Source: Company Reports)

Outlook: The company has reported better than expected results during the first four months of FY21. CPU maintained its earlier given guidance for FY21 and expects management EPS to decrease by ~11% when compared to FY20. However, it anticipates EBIT (ex. Margin Income) growth to increase by ~10% on FY20. During H1FY21, it benefitted from strong corporate actions and transaction events and expects H2FY21 to be impacted by moratorium extension in US Mortgage Services.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:  The company has delivered stable income streams despite the volatility induced by the COVID-19 pandemic. CPU gave a return of 16.22% in the past three months and a return of 1.60% in the past one month. The stock of CPU is trading above the average of its 52 weeks trading range of $8.270-$18.390. On a technical front, the stock of CPU has a support level of $13.487 and a resistance level of $15.249. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as Link Administration Holdings Limited (ASX: LNK), Codan Limited (ASX: CDA), Appen Limited (ASX: APX), to name a few. Considering the current trading levels, increase in business activity in its key segments and given the decent start in FY21, we recommend a ‘Hold’ rating on the stock at the current market price of $14.54, down by 0.343% as on January 04, 2021.

Bravura Solutions Limited

Signing of Long-Term Contract: Bravura Solutions Limited (ASX: BVS) is engaged in the development, licensing and maintenance of administration and management software applications. It also provides consulting services to the Wealth Management and Funds Administration sectors. The market capitalisation of the company as on 04 January 2020, stood at ~$795.87 million. As per a recent update, Aware Super has signed a long-term contract for the implementation of Bravura products.

FY20 Financial Update: Bravura reported decent financial performance in FY20. There was an increase in revenues by 6% to $274.2 million in FY20 from $257.7 million in FY19. EBITDA increased by 19% to $57.8 million during the same period. NPAT also grew by 22% to $40.1 million, aided by acquisitions.

FY20 Performance (Source: Company Reports)

Outlook: The company has a strong sales pipeline with revenue visibility across its key markets. It will continue to focus on its core R&D strengths and make investments to enhance its market position in FY21 and FY22. BVS expects market demand across digital solutions, automation and microservices ecosystems, accelerated by the impact of COVID-19.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:  The company is well placed to take advantage of any opportunities ahead, with a stable balance sheet. It had a net cash position of $99.1 million as on 30 June 2020. BVS gave a negative return of 6.06% in the past three months and a negative return of 0.30% in the past one month. The stock of BVS is trading below its average 52 weeks’ trading range of $2.850-$5.980, proffering a decent opportunity for the investors to enter the stock. On a technical front, the stock of BVS has a support level of $2.926 and a resistance level of $3.502. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as Hansen Technologies Limited (ASX: HSN), TechnologyOne Limited (ASX: TNE), Iress Limited (ASX: IRE), to name a few. Considering the current trading levels, decent financial performance and positive near-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $3.25, up by 0.931% as on January 04, 2021.

Over the Wire Holdings Limited

FY21 Business Update: Over the Wire Holdings Limited (ASX: OTW) is engaged in offering an integrated product suite of services (Data Networks and Internet, Voice, Hosting and Security & Managed Services). The market capitalisation of the company as on 04 January 2020, stood at ~$254.20 million. The company has recently provided an update regarding its trading in FY21. It expects H1FY21 EBITDA to be in the range of $10 - $10.5 million. Revenue and EBITDA have been aided by the recent acquisitions by OTW. The company expects earnings contribution from a new contract with Eagers Automotive, from February 2021.

OTW reported a CAGR revenue growth of ~30% between 2016 and 2020. Revenue from data services formed the bulk of the revenue.

Revenue Growth (Source: Company Reports)

Outlook: The company expects to deliver decent performance in FY21 with a pipeline of signed contracts. It also expects to get additional business with its offering of solution development around SD-WAN, Security and network access aggregation.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:  The company has been awarded a contract to provide Eagers Automotive with SD-WAN, WAN carriage, etc. across its Australia and New Zealand operations. OTW gave a negative return of 11.42% in the past three months and a negative return of 8.86% in the past one month. The stock of OTW is trading above its average 52 weeks’ trading range of $1.830-$5.000. On a technical front, the stock of OTW has a support level of $3.91 and a resistance level of $4.472. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as Data#3 Limited (ASX: DTL), HT&E Ltd (ASX: HT1), and Hubify Limited (ASX: HFY). Considering the current trading levels, revenue visibility aided by acquisitions and a pipeline of signed contracts, we recommend a ‘Hold’ rating on the stock at the current market price of $4.110, down by 3.972% as on January 04, 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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