Stock of the Day - Computershare Limited (EXPENSIVE)
Computershare Limited (CPU), the global software and services’ company, witnessed solid earnings in the financial year 2014. The Company reported a 60.1% increase in its statutory earnings per share. This increase more or less resulted from better operating performance, reduced costs pertaining to acquisition integration and reduced charges associated with divesting underperforming assets. There was a 9.8% increase in management earnings per share. Not much change was seen in revenues, however, earnings were found to be better due to reduced costs and balanced integration of the acquired Shareowner Services business. Further, there was 22.5% yoy increase to $409.3 million of operating cash ?ows.
CPU witnessed a submissive transaction-based activity in many businesses. The margin income returns were also skewed due to interest rates which have been persistently low. The Company reported that it had growth in its employee plans business.
Financial Highlights in USD (Source – Company Reports)
CPU announced a ?nal dividend of AUD 15 cents per share, 20% franked, payable on 16 September 2014, and endures to operate a dividend reinvestment plan. The Company’s total assets increased by $189.3 million from 30 June 2013 to $3,808.2 million as at 30 June 2014. The Company recently re?nanced its syndicated bank debt facility, which led to the increase in the facility size from $800 million to $900 million.
Looking at specific regions, CPU’s revenues in Australia and New Zealand fell by 11.7% to $376.4 million and management EBITDA fell by 9.8% to $69.8 million. The Company reported the decline emanating from the weaker Australian dollar along with sale of the Australian fund services business in 1H. Moreover, margin income worsened owing to soft Australian dollar interest rates and the maturity of hedges. For New Zealand business, CPU witnessed flat revenues and earnings. The Company completed the trilogy of IPOs associated with New Zealand Treasury sale of State Owned Enterprises; and also launched the next generation of Investor Centre in February 2014 in view of smoothening the online experience for Computershare and clients’ shareholders.
Australia and New Zealand Regional Overview (Source – Company Reports)
CPU’s revenues declined in Asian region, with a fall of 1.0% to $111.9 million. On the other hand, the management EBITDA rose by 10.0% to $36.7 million. There was an upsurge in earnings due to increase in Hong Kong registry maintenance, corporate action and employee plan revenues. CPU did face a decline in revenues in India which worsened by the 12% depreciation of the Indian rupee. With solid growth in the Indian Investor Services business, CPU could not counterbalance the weak Business Services.
United Kingdom, Channel Islands, Ireland and Africa Regional Overview (Source – Company Reports)
As opposed to that, CPU’s revenues in United Kingdom, Channel Islands, Ireland and Africa rose by 8.1% to $324.0 million and management EBITDA witnessed a 4.0% increase to $120.4 million. 2H also saw high Investor Services business revenues and earnings. The employee plans business witnessed increased revenues. However, soft margin income contribution depreciated the earnings. The Company renewed the contract with HM Treasury to administer the British Government Stock Registers (Gilts) for next ten years.
CPU’s revenues rose by 5.5% on FY2013 to $889.7 million in United States, with management EBITDA going up by 21.5% to $208.8 million. Revenues for Register maintenance, Business Services, employee plans and Communication Services rose yoy. On the other hand, revenue for Corporate actions declined owing to lower margin income. Also, Stakeholder Relationship Management revenues were slightly down.
Coming to Continental Europe, CPU’s revenues went up by 4.4% to $115.1 million with management EBITDA declining by 12.0% to $14.2 million. Growth was seen to face uncertainty in Russia, and was flat in Italy.
In Canada, the Company’s revenues declined by 4.2% to $189.8 million and management EBITDA also declined by 7.2% to $75.7 million. There was an increase in Employee plans and corporate trust revenues while CPU profited from the Olympia acquisition.
With respect to CPU’s Global Capital Markets business, the Company reported to have a favorable year with Global Transactions unit having growth in transactional activity owing to cross-border transactions increase; long-drawn-out US custody-related activities for international share plans; and the facilitation of local Australian IPO settlements.
Revenue (Source – Company Reports)
CPU’s total technology spend decreased by 7.8% to $240.9 million, and its capital expenditure on property, plant and equipment declined by 58% to $21.2 million in FY2014.
With respect to managing a strategic balance of acquiring potential assets and divesting non-core assets, CPU recently acquired SG Vestia Inc - a Canadian employee equity plan administrator, Registrar and Transfer Company - a US transfer and proxy agent, assets of Probity - a company secretarial business in South Africa; sold the Pepper business located in Germany, Singapore and the US, the Highlands Insurance Solutions business based in the US; 50% ownership stake in Chelmer - a software business based in New Zealand; and increased investment (from 25% to 40%) in INVeSHARE, a US company, etc. Then a sale process in relation to VEM Aktienbank AG in Germany is also underway. Also, the Digital Post Australia joint venture between Computershare and Zumbox Inc was closed. CPU now plans to acquire Homeloan Management from Skipton Building Society.
CPU Daily Chart (Source - Thomson Reuters)
In view of the FY2015 Outlook, CPU expects its management earnings per share to be only ~5% higher than FY2014.
Of course, certain prevailing risks entail strategic and regulatory risks, financial risks, and technology risks. Further, the low interest rate environment, small retail participation in IPOs, and lower conversion rate are a blow to its businesses. There also appears a little confidence in the Outlook in view of ‘not-so-great’ 2H revenue growth, challenges from the financial environment, and adverse sentiments with regards to cost performance.
Office Locations (Source – Company Reports)
This mix of positives and negatives makes us believe that the stock is
EXPENSIVE at the current price of $11.83, and we would review the same at a later date.
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