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CPU

Computershare Ltd FY20 Result - Weak Result

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Computershare Ltd (ASX: CPU) is a technology company that was founded in Melbourne in 1978. Computershare specialises in providing computer bureau services to Australian share registrars. Additionally, Computershare has expanded into employee equity plans, stakeholder communications, corporate governance, fund services, class action administration, deposit protection and most recently, mortgage servicing. Computershare is a global company that manages around 75 million customer records. Computershare has a market capitalisation of A$8.3 billion.

 

CPU

What are the key results from Computershare’s FY20 report?

Revenue for FY20 is $2.3 billion, down 1.9% from FY19. Net profit after tax for FY20 (at FY19 CC) is $305.0 million, down 20% from FY19. Earnings before Interest and Tax for FY20 (at FY19 CC) is $500.2 million, down 15% from FY19. Computershare has maintained their dividend guidance with a final dividend per share of 23 cents. Management earnings per share is 56.3 cents and is down 19.8%.

Computer share’s individual businesses were all down in FY20. Issuer Services management EBITDA is down 16.1% from FY19, Employee Share Plans EBITDA is down 16.9%, Mortgage Services EBIT is down 5.5% and Business Services EBITDA is down 3.8%.

Computershare’s CEO mentioned that since March, due to the COVID-19 pandemic spreading Computershare revenues have been impacted by reduced activity levels. In addition, to the economic effects of COVID-19, falling interest rates, due to central banks providing a monetary stimulus to economies around the world, has cut into Computershare’s margin income. On the positive side, it was observed that Computershare’s business activities have slightly improved in the last 2 months, providing some good news for the company’s operations.

What is the outlook for Computershare?

Computershare management did provide FY21 guidance, given this uncertain macroeconomic environment. Management earnings per share is expected to be down by around 11% in FY21. EBIT margin income growth is expected to be up around 10%. Computershare also noted several headwinds and tailwinds the company may face in FY21. Regarding FY21 headwinds these include: margin income yields reduce as term deposits run off; shareholder transactional activity expected to remain weak; Employee Share Plans transaction volumes expected to be lower; Government mortgage holiday impacting activity; and UKAR fixed fee roll-off. Regarding FY21 tailwinds these include: growing contribution from new Issuer Services businesses and growth initiatives; ongoing Equatex integration benefit; US Mortgage Services capital light; sub-servicing and non-performing loan opportunities; and FY20 MSR purchases undertaken at favourable pricing and existing cost out program continues to deliver.

What is the market reaction to Computershare FY20 result?

The market reaction to Computershare’s FY20 result is negative. Computershare’s share price is down around 3.2% and is currently trading at A$13.23. This is a negative market reaction as the Australian market is only down around 0.5% today. Computershare is trading at a forward P/E ratio in the mid-teens and has an annual dividend yield of around 3%.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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