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Computershare Ltd HY20 Results – Weak Result

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities 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.

COMPUTERSHARE LTD

What are the key features of Computershare’s HY20 report?

  • Revenue for HY20 is US$1,141.7 million, up 1.2% at constant currency (CC) compared with the corresponding period.
  • Net profit after tax (NPAT) for HY20 is US$157.8 million, down 16.9% at CC compared with the corresponding period.
  • Earnings before interest, taxes, depreciation and amortization (EBITDA) for HY20 is US$338.7 million, up 2.2% at CC compared with the corresponding period.
  • Interim dividend for HY20 is US23 cents (30% franked).
  • Earnings per share for HY20 is US29.12 cents, down 16.7% at CC compared with the previous quarter.

 

What are the main drivers of this result?

NPAT and earnings per share are down strongly for three primary reasons. Firstly, the delayed UK Mortgage Services platform migrating loans to Computershare’s platform ($18 million) and lower margin income ($8 million).

Secondly, margin income revenue was impacted by lower interest rates in the US and balances margin income revenues declined by 7% to $117m, with a lower achieved yield also expected in the second half of the year.

Finally, Computershare assumed the US group tax rate for FY20 would increase to around 27%, whereas the tax rate in the first half result was 31.6%. Computershare now expect the tax rate for the full year to be between 29-31%. This increase has been largely driven by Mortgage Services profit mix and the impact of the new Base Erosion Anti Abuse Tax in the US.

 

What is the outlook for Computershare?

The outlook for Computershare over the short-term is neutral. Computershare’s management note the following on the outlook:

  • Earnings per share for FY20 is estimated to be down around 5% at CC.
  • Mortgage Services and Employee Share Plans expected to offset weak Corporate Actions, lower margin income and a higher tax rate
  • Guidance implies 2H20 Management EPS of around 1.5 cents per share greater than 2H19 Management EPS.

Computershare announced on 5 February 2020 that the company has entered into a binding agreement to acquire the business and assets of Corporate Creations Enterprises LLC (Corporate Creations). This acquisition is subject to regulatory filing and other customary closing conditions. The transaction is expected to close in Q1 CY2020.

Computershare’s CEO Stuart Irving noted:

We are excited by the acquisition of Corporate Creations. Computershare has been partnering with them to provide Registered Agent services for the last 3 years and has developed a strong understanding of their operations and capabilities. Corporate Creations is a compelling strategic fit and accelerates our Issuer Services growth strategy in the complementary, large and growing US Registered Agent market.

 

What is the market reaction to Computershare’s HY20 report?

The market reaction to Computershare’s HY20 report is negative. Computershare is down 1% and is currently trading at A$17.36. Computershare has a forward P/E ratio in the high-teens and has an annual dividend yield of around 2.5%.


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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