JP Morgan has downgraded Computershare (CPU) to neutral from overweight following an operationally weak result and a recent share price rally. It also lowered its price target to $9.12, from $9.61.
Despite management maintaining full-year 2013 guidance for 10 to 15 per cent earnings per share growth, the broker believes the company is benefitting from a low effective tax rate and higher one-off adjustments.
It continued, saying it thinks the leverage to corporate activity and rising interest rates is now reflected in the share price and it expects weakness in the operating trends to continue to drag earnings growth in the near term.
"Underlying trends were weaker than expected and we estimate organic growth to have been -9 per cent versus the prior corresponding period. Weakness was apparent across all regions except the UK, which was stable. Management cited a tough competitive environment in Canada, while Australia & New Zealand was weak in registry maintenance and communication services. We believe the US continues to decline on shareholder attrition and pricing pressure on renewals, and slower growth in its Specialised Loan Servicing business,” the broker noted in its report.
Elsewhere, Macquarie Group maintained its outperform rating on Computershare, commenting that synergies and acquisitions were supporting growth, with upside risk to consensus full-year 2013 earnings per share growth forecasts, which stand within a conservative guidance range.
In other stock news, WorleyParsons (WOR) was upgraded to outperform by Macquarie, with its target price increased by 14.2 per cent to $29.
"Worley is cheap trading at a modest 4 per cent price-earnings premium to market (versus 35 per cent historic premium) and 3 per cent premium to global peers (18 per cent historically)."
"The stock has been a significant laggard relative to global peers and the ASX100, underperforming both by 10 per cent in the last three months," the broker said. "With full-year 2013 expectations now more realistic, the focus should shift to Worley’s positive medium to long-term outlook. This is driven by an advantaged oil and gas position (strong upstream), attractive North American exposure and robust balance sheet with acquisition potential."
MARKETS SPECTATOR: Computershare split
Brokers are divided on Computershare, with one concerned about weakness in operating trends and another buoyant on new synergies and acquisitions.
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