Acquisitions put dent in registry earnings
Computershare posted a net profit of $94.8 million in the six months to December 31, down 15.2 per cent. The company said profits rose 16.4 per cent if one-off costs of the acquisitions were excluded.
"We have witnessed a recent uptick in equity markets as reflected in the higher index levels across the globe," the chief executive, Stuart Crosby, said. "However, we are not seeing that in our business."
The company maintained an interim dividend of 14¢ a share, but the franking credit was cut from 60 per cent to 20 per cent.
"We will be disappointed if we won't be able to maintain that sort of [franking credit] level, and it depends on the profitability of our Australian business rather than our international business," the company's outgoing chief financial officer, Peter Barker, said.
Computershare derives 76 per cent of its revenue outside of Australia and last year doubled its presence in the North American market by spending $550 million to buy Bank of New York Mellon's share-owner services division.
Deutsche analysts said underlying revenue streams were displaying "softness" despite Computershare management meeting their profit forecast. "Revenues of $988 million were down 4 per cent versus Deutsche's [forecast] with weakness evident in registry and stakeholders management," analysts Kieren Chidgey and Shreyas Patel said in a research note to clients.
They also questioned the sustainability of margin income, which made up 65 per cent of pre-tax profit in the half year.
Mr Crosby said the company's focus for the past year had been the integration of its newly acquired businesses. Now the company was looking at new acquisition targets despite reaching its debt comfort level after its acquisitions last year. "We are certainly looking again," he said, "I don't think it is anything that is paradigm changing for us in contemplation at the moment."
Frequently Asked Questions about this Article…
Computershare's profit was hit by costs related to three large acquisitions made in the first half of last year. The company reported a net profit of $94.8 million for the six months to December 31, down 15.2%. Management says if one-off acquisition costs are excluded, profits actually rose 16.4%, and the CEO noted the recent equity market uptick hasn't yet translated into their business performance.
Computershare spent $550 million to buy Bank of New York Mellon's share-owner services division, doubling its North American presence. The company focused on integrating those newly acquired businesses over the past year, which drove one-off costs and pushed the business to its debt comfort level. Management says they are still looking at new targets, but nothing paradigm-changing is currently contemplated.
Computershare maintained its interim dividend at 14 cents per share, but cut the franking credit attached to that dividend from 60% to 20%. The outgoing CFO said the ability to maintain franking levels depends on the profitability of the company's Australian business rather than its international operations.
About 76% of Computershare's revenue is generated outside Australia. That heavy international exposure matters because swings in regional markets, integration of overseas acquisitions, and profitability in Australia (which affects franking) can all influence overall company results.
Deutsche analysts said underlying revenue streams were showing 'softness' despite management meeting profit forecasts. They noted revenues of $988 million were down 4% versus Deutsche's forecast, with weakness in registry and stakeholder management. They also questioned the sustainability of margin income, which accounted for 65% of pre-tax profit in the half year.
Yes. Although the company reached what it describes as a debt comfort level following last year's acquisitions, CEO Stuart Crosby said they are 'certainly looking again' at new acquisition targets. He added that nothing currently under contemplation would be paradigm changing for the business.
Investors should watch progress on integration of recent acquisitions, trends in registry and stakeholder management revenues, the sustainability of margin income, any changes to dividend franking levels, and commentary on Australian business profitability given its influence on franking credits.
Management says they have seen a recent uptick in global equity markets, but that improvement hasn't shown up in Computershare's own business results. The company points to acquisition-related costs, integration work and specific softness in some revenue streams as reasons the market rally hasn't translated into stronger short-term performance.
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