Downturn catches up with Computershare

In the face of a deteriorating market environment, Computershare opted to expand rapidly in order to maintain growth. With conditions still dour, it's a strategy that is running out of steam.

In the battle against ongoing subdued market activity, Computershare has continued on its tried and tested path of growth through acquisition. But has it all been in vain?

In 2011, Computershare bought two companies; Serviceworks Group, a Melbourne-based utilities business, and Specialized Loan Servicing, a residential mortgage provider in the US.

And in 2012, it pounced on BNY Mellon’s Shareowner Services business, also in the US, snapping it up for a cool $550 million. In fact, since the beginning of the global financial crisis, Computershare has acquired no less than 11 companies around the globe.

There’s no sign of a slowdown either. BNY Mellon’s Shareowner Services business was the largest acquisition in Computershare’s history and the company has made it clear that it will still consider acquisitions and growth opportunities that could bring added value.

But despite this aggressive growth strategy, the drop in market activity looks to have finally caught up with the group as evidenced from full-year figures released today. While revenue jumped 12.4 per cent to $1.8 billion in fiscal 2012, net profit slumped 40.7 per cent to $156.5 million. This huge fall in profit, though largely expected, is tough medicine for the company to take, mostly because although it’s making all the right moves, the external environment just keeps getting worse and worse.

The ongoing crisis in Europe has had a significant impact on growth. Illustrating this perfectly is an impairment charge of $63.8 million that the company took in its continental European business during the year. Without a resolution to the debt crisis, the region will continue to pose a challenge for Computershare.

Leaving aside the issues in Europe, Computershare’s latest figures also serve to highlight just how tough domestic conditions are. With corporate activity heavily subdued, it’s no surprise that profits have fallen so much.

Mergers and acquisitions have been few and far between on a domestic level – though Computershare can boast that of the few that took place in the past year, it was successful in winning its fair share, including its part in the takeover of Fosters by SAB Miller, and Barrick Gold’s acquisition of Equinox Minerals. The fact that its corporate actions revenue is at the lowest level since 2004 shows just how challenging the market is right now.

The lack of IPOs in the Australian market has also hit Computershare hard in the past 12 months, as companies shy away from an unforgiving market. And with volatility on the global stage likely to remain for some time, thus hindering any chance at respite for the domestic market, Computershare is digging in its heels, determined to ride out the storm.

Computershare’s strategy is to ensure it is in the best possible position when the market eventually turns a corner. It credits recent acquisitions with enabling it to hold onto its solid earnings profile. But most notably, the aggressive action that the company has undertaken is merely in an attempt to "stand still” in the marketplace.

The problem is that at the moment, there’s no end in sight for the current challenging operating environment. And the action taken by Computershare may not be enough to allow it to keep its standing in the market.

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